What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-04-30 · 503 added, 358 removed, 510 unchanged (63% of the section changed)

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When used in this Quarterly Report on Form 10-Q and in other documents filed or furnished by Great Southern Bancorp, Inc.

(the “Company”) with the Securities and Exchange Commission (the “SEC”), in the Company’s other press releases or other public or stockholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases “may,” “might,” “could,” “should,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “believe,” “estimate,” “project,” “intends” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

(the “Company”) with the Securities and Exchange Commission (the “SEC”), in the Company’s press releases or other public or stockholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases “may,” “might,” “could,” “should,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “believe,” “estimate,” “project,” “intends” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements also include, but are not limited to, statements regarding plans, objectives, expectations or consequences of announced transactions, known trends and statements about future performance, operations, products and services of the Company.

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Actual results could differ from those estimates.

Allowance for Credit Losses

Allowance for Credit Losses and Valuation of Foreclosed Assets

On January 1, 2021, the Company adopted the new accounting standard related to the allowance for credit losses.

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in other instances, the factors that led to the deterioration may improve or the credit may be refinanced elsewhere and allocated allowances may be released from the particular credit.

In addition, the Company considers that the determination of the valuation of foreclosed assets held for sale involves a high degree of judgment and complexity.

The carrying value of foreclosed assets reflects management's best estimate of the amount to be realized from the sale of the assets.

While the estimate is generally based on a valuation by an independent appraiser or recent sales of similar properties, the amount that the Company realizes from the sale of the assets could differ materially from the carrying value reflected in the financial statements, resulting in gains or losses that could materially impact earnings in future periods.

Goodwill and Intangible Assets

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The Company defines reporting units as a level below each of its operating segments for which there is discrete financial information that is regularly reviewed.

As of March 31, 2024, the Company had one reporting unit to which goodwill has been allocated – the Bank.

As of June 30, 2024, the Company had one reporting unit to which goodwill has been allocated – the Bank.

If the fair value of a reporting unit exceeds its carrying value, then no impairment is recorded.

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Intangible assets that are not amortized will be tested for impairment at least annually by comparing the fair values of those assets to their carrying values.

At March 31, 2024, goodwill consisted of $5.4 million at the Bank reporting unit, which included goodwill of $4.2 million that was recorded during 2016 related to the acquisition of 12 branches and the assumption of related deposits in the St.

At June 30, 2024, goodwill consisted of $5.4 million at the Bank reporting unit, which included goodwill of $4.2 million that was recorded during 2016 related to the acquisition of 12 branches and the assumption of related deposits

Louis market.

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In April 2022, the Company, through its subsidiary Great Southern Bank, entered into a naming rights agreement with Missouri State University related to the main arena on the university’s campus in Springfield, Missouri.

The terms of the agreement provide the

naming rights to Great Southern Bank for a total cost of $5.5 million, to be paid over a period of seven years.

The terms of the agreement provide the naming rights to Great Southern Bank for a total cost of $5.5 million, to be paid over a period of seven years.

The Company expects to amortize the intangible asset through non-interest expense over a period not to exceed 15 years.

At March 31, 2024, the amortizable intangible assets included the arena naming rights of $5.0 million, which are reflected in the table below.

At June 30, 2024, the amortizable intangible assets included the arena naming rights of $4.9 million, which are reflected in the table below.

These amortizable intangible assets are reviewed for impairment if circumstances indicate their value may not be recoverable based on a comparison of fair value.

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This judgment may include developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables and incorporating general economic and market conditions.

Management does not believe any of the Company’s goodwill or other intangible assets were impaired as of March 31, 2024.

While management believes no impairment existed at March 31, 2024, different conditions or assumptions used to measure fair value of the reporting unit, or changes in cash flows or profitability, if significantly negative or unfavorable, could have a material adverse effect on the outcome of the Company’s impairment evaluation in the future.

A summary of goodwill and intangible assets as of the dates indicated is as follows:

Management does not believe any of the Company’s goodwill or other intangible assets were impaired as of June 30, 2024.

While management believes no impairment existed at June 30, 2024, different conditions or assumptions used to measure fair value of the reporting unit, or changes in cash flows or profitability, if significantly negative or unfavorable, could have a material adverse effect on the outcome of the Company’s impairment evaluation in the future.

A summary of goodwill and intangible assets as of the date indicated is as follows:

(In Thousands)

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Additionally, the Federal Reserve acted decisively by slashing its benchmark interest rate to near zero and ensuring credit availability to businesses, households, and municipal governments.

The Federal Reserve’s efforts largely insulated the financial system from the problems in the economy, a significant difference from the financial crisis of 2007-2008.

The Federal Reserve’s efforts largely insulated the financial system from the

problems in the economy, a significant difference from the financial crisis of 2007-2008.

Purchases of Treasury and agency mortgage-backed securities totaling $120 billion each month by the Federal Reserve commenced shortly after the pandemic began.

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The federal government deficit was $2.8 trillion in fiscal 2021, close to $1.4 trillion in fiscal 2022, and $1.7 trillion in fiscal 2023.

The Federal Reserve aggressively raised the federal funds interest rates since early 2022 through mid-2023, pushing the federal funds rate to more than 5.50%, its highest level in 22 years.

The Federal Reserve aggressively raised the federal funds interest rates from early 2022 through mid-2023, pushing the federal funds rate to more than 5.50%, its highest level in 22 years.

The Federal Reserve’s actions were motivated by surging inflation in 2021 caused by pandemic-fueled spending, which outpaced the ability of producers to supply goods and services after having been impacted by COVID-related shutdowns and clogged transportation systems.

The Federal Reserve has made some headway in its attempt to force inflation down.

The personal consumption expenditures (PCE) price index, the Federal Reserve's preferred measure of inflation, eased from its peak of 7.1% in June 2022 to 2.9% in December 2023, but core PCE, which excludes food and energy prices, has been slower to retreat and sat at 2.8% at March 2024, above the Federal Reserve's target of 2.0%.

Moody’s is projecting real GDP in 2024 to be higher than previously forecast, but the persistence of high interest rates may slow economic growth.

Real GDP is projected to rise 2.6% in 2024 on an annual average basis, an upward revision of 0.1%, and is projected to grow 1.6% in 2025 and 1.9% in 2026.

The national unemployment rate has ranged from 3.4% to 3.8% since March 2022.

The number of unemployed individuals also remained steady at 6.4 million as of March 2024 with 303,000 jobs added in March 2024.

In March 2024, employment gains in health and private education, government, and leisure and hospitality contributed to 208,000 of the total job gains.

Leisure and hospitality employment rebounded to its pre-pandemic level, with 49,000 of job gains in March 2024, partly boosted by the milder winter.

As of March 2024, the labor force participation rate (the share of working-age Americans employed or actively looking for a job) remained stable at 62.7%.

The unemployment rate for the Midwest, where the Company conducts most of its business, increased from 3.3% in March 2023 to 3.6% in March 2024.

Unemployment rates for March 2024 in the states where the Company has a branch or a loan production office were Arizona at 3.8%, Arkansas at 3.5%, Colorado at 3.7%, Georgia at 3.1%, Illinois at 4.8%, Iowa at 2.9%, Kansas at 2.7%, Minnesota at 2.7%, Missouri at 3.3%, Nebraska at 2.4%, North Carolina at 3.5% and Texas at 3.9%.

Of the metropolitan areas in which the Company does business, most are below the national unemployment rate for March 2024 of 3.8%, except for Chicago at 4.7%.

The personal consumption expenditures (PCE) price index, the Federal Reserve's preferred measure of inflation, eased from its peak of 7.1% in June 2022 to 2.9% in December 2023, but core PCE, which excludes food and energy prices, has been slower to retreat and sat at 2.6% at June 2024, still above the Federal Reserve's target of 2%.

Moody’s is projecting real GDP in 2024 to be slightly lower than previously forecast, as the persistence of high interest rates continues to impact GDP growth rates.

Real GDP is projected to rise 2.4% in 2024 on an annual average basis, a downward revision of 0.1%, and is projected to grow to 1.8% in 2025 and 1.9% in 2026.

The actual real GDP quarterly increase in the first quarter of 2024 was 1.4% and the second quarter of 2024 advance estimate for real GDP was a quarterly increase of 2.8%.

The national unemployment rate was 4.1% as of June 2024 and has ranged from 3.4% to 4.1% since June 2022.

The number of unemployed individuals remained steady at 6.8 million as of June 2024, with 206,000 jobs added in June 2024.

In June 2024, employment gains in healthcare, government, and construction contributed to 153,000 of the total job gains.

As of June 2024, the labor force participation rate (the share of working - age Americans employed or actively looking for a job) remained stable at 62.6%.

The unemployment rate for the Midwest, where the Company conducts most of its business, has increased from 3.4% in June 2023 to 3.8% in June 2024.

Unemployment rates for June 2024 in the states where the Company has a branch or a loan production office were Arizona at 3.3%, Arkansas at 3.3%, Colorado at 3.8%, Georgia at 3.3%, Illinois at 5.0%, Iowa at 2.8%, Kansas at 3.1%, Minnesota at 2.9%, Missouri at 3.7%, Nebraska at 2.6%, North Carolina at 3.6%, and Texas at 4.0%.

The rates are slightly higher for many of these states compared to March 2024.

Of the metropolitan areas in which the Company does business, most are below the national unemployment rate for June 2024 of 4.1%.

Single Family Housing

Existing home sales decreased 4.3% in March 2024 from February 2024 to a seasonally adjusted annual rate of 4.19 million, down 3.7% from the previous year.

In the Midwest, existing-home sales retracted 1.9% from February 2024 to an annual rate of 1.01 million in March 2024, down 1.0% from one year ago.

The median existing-home sales price rose 4.8% from March 2023 to $394,000 in March 2024.

Existing - home sales decreased to a seasonally adjusted annual rate of 3.89 million in June 2024, down 5.4% from the previous year.

In the Midwest, existing - home sales declined to an annual rate of 920,000 in June 2024, down 6.1% from one year ago.

The median existing - home sales price rose 4.1% from June 2023 to an all - time high of $426,900 in June 2024.

All four U.S.

regions registered price gains.

The median price in the Midwest was $292,000, up 7.5% from March 2023.

Total housing inventory registered at the end of March 2024 was 1.1 million units, up 4.7% from February 2024 and up 14.4% from one year ago of 970,000.

Unsold inventory sat at a supply of 3.2 months in March 2024, up from 2.9 months in February 2024 and 2.7 months in March 2023.

The median price in the Midwest was $327,100, up 5.5% from June 2023.

Total housing inventory registered at the end of June 2024 was 1.32 million units, up 3.1% from May 2024 and up 23.4% from one year ago of 1.07 million units.

Unsold inventory sat at a 4.1 - month supply in June 2024, up from 3.7 months in May 2024 and up from 3.1 months in June 2023.

New home construction dropped precipitously after the financial crisis of 2007-2008 and has yet to fully recover.

Issues contributing to the country’s current housing shortage include increasing labor and materials costs, availability of building materials, increased interest rates and tighter lending underwriting standards.

Sales of new single‐family houses in March 2024 were at a seasonally adjusted annual rate of 693,000, according to the U.S.

Sales of new single - family houses in June 2024 were at a seasonally adjusted annual rate of 617,000, according to the U.S.

Census Bureau and the Department of Housing and Urban Development.

This was 8.8% above the revised February 2024 rate of 637,000 and 8.3% above the March 2023 rate of 640,000.

The median sales price of new houses sold in March 2024 was $431,000, down from $439,000 in March 2023.

The average sales price in March 2024 of $525,000 was up from $520,000 in March 2023.

The seasonally‐ adjusted estimate of new houses for sale at the end of March 2024 was 477,000.

This represented a supply of 8.3 months at the current sales rate.

According to Freddie Mac, the average commitment rate for a 30-year, fixed-rate mortgage was 7.1% as of April 18, 2024 which is up 6.9% from the previous week and 6.4% from one year ago.

This was 0.6% below the revised May 2024 rate of 621,000 and was 7.4% below the June 2023 rate of 666,000.

The median sales price of new houses sold in June 2024 was $417,300, up from $415,400 in June 2023.

The average sales price in June 2024 of $487,200 was down from $494,700 in June 2023.

The seasonally - adjusted estimate of new houses for sale at the end of June 2024 was 476,000.

This represents a supply of 9.3 months at the current sales rate.

According to Freddie Mac, the average commitment rate for a 30 - year, fixed - rate mortgage was 6.77% as of July 22, 2024, which is down from 6.89% for the previous week and down from 6.78% one year ago.

Other Residential (Multi-Family) Housing and Commercial Real Estate

Rising consumer sentiment and slowing inflation resulted in a strong demand rebound in 2023 for the U.S.

multifamily market.

New deliveries for 2023 were at a 40-year high of almost 583,000 units.

Supply additions are projected to fall by 21% in 2024 to 460,000 units, as a higher interest rate environment, combined with a pullback in construction lending, has seen some developers unable to move forward on proposed projects.

This suggests the beginning of a meaningful pause in deliveries towards the end of 2024 and into 2025, allowing overbuilt Sun Belt markets to absorb their current supply overhang and return to equilibrium more quickly.

Until then, these markets may experience significant performance pressures, especially in the 4 & 5 Star segment, where most of the new supply is priced.

The Midwest and Northeast fared the best in 2023 with nine out of the ten strongest rent growth markets in 2023 from one of those two regions.

The Chicago market rents rose from 3.0% to 3.7% in 2023.

Downward pressure on rent growth will likely continue in the first half of 2024.

Per CoStar projections, markets in the South and luxury properties remain at the most risk for weakness due to oversupply conditions, while Midwest and Northeast locations and mid-priced 3 Star properties could outperform.

Although factors such as declining household formations, rising supply deliveries, and weakening demand may present temporary obstacles, the long-term issue of a major housing shortage remains in our nation.

Thus, rent growth is anticipated to rebound above historical averages.

As of March 31, 2024, the national multi-family market vacancy rate was 7.8%.

Our market areas reflected the following apartment vacancy levels as of March 2024:

multi - family market experienced a healthy rebound in demand for the first half of 2024, driven by rising consumer confidence and diminishing recession fears.

Despite the notable growth in demand in 2024, the influx of new supply continues to saturate the market.

During the first quarter of 2024, 153,000 units were completed, with an estimated 163,000 units expected to be delivered in the second quarter.

Most new supply additions are concentrated at the 4 and 5 Star price point, contributing to the weakest rent growth observed in this market.

Consequently, the persistent imbalance between supply and demand is projected to increase the vacancy rate, which is expected to reach a record 7.9% by the end of June 2024.

The Midwest and Northeast have fared the best over the past two years seeing the most favorable rent growth.

The Sun Belt market rent growth has been more sluggish, with numerous markets reporting negative year over year rent growth by the end of May 2024.

Current projections indicate 533,000 completions for the year, reflecting a 9% decline from the record supply seen in 2023.

At the same time, absorption is accelerating, offering the national market an opportunity to stabilize and possibly begin recovering by the end of 2024.

The June 2024 national multi-family market vacancy rates remained consistent with the previous quarter at 7.8%.

Our market areas reflected the following apartment vacancy levels as of June 2024:

Springfield, Missouri at 5.3%, St.

Louis at 10.5%, Kansas City at 8.9%, Minneapolis at 8.3%, Tulsa, Dallas-Fort Worth at 10.8%, Chicago at 5.6%, Atlanta at 12.2%, Phoenix at 10.6%, Denver at 9.0% and Charlotte, North Carolina at 11.6%.

Shrinking demand continues to plague the U.S.

office market so far in 2024, shooting vacancy up to a record 13.8% and bringing cumulative negative absorption to more than 200 million SF since the beginning of 2020.

Deliveries in 2025 are expected to be the lowest in a decade, tapering off to a negligible amount afterward.

This should tighten the market for desirable first-generation space.

Higher vacancy and deteriorating rents have severe implications for property values, with further cap rate expansion expected to exacerbate the situation.

On average, values are down around 20% since the end of 2021.

Louis at 9.5%, Kansas City at 7.7%, Minneapolis at 7.3%, Dallas-Fort Worth at 10.6%, Chicago at 5.6%, Atlanta at 12.3%, Phoenix at 11.0%, Denver at 9.6% and Charlotte, North Carolina at 12.3%.

The rates are slightly higher for some of these cities compared to March 2024.

Absorption was positive in the second quarter of 2024 for the office industry, but supply additions held vacancy at 13.8%.

Owner occupied, medical office users, and fewer high profile move-outs drove the uptick in occupancy, but persistently small leases and looming rollover exposure suggest the reprieve is likely temporary.

The 89.1 million SF under construction is the lowest amount since 2013, and the 20 million SF in construction starts over the past year is the lowest amount on record for a 12-month period.

Net deliveries are expected to taper off to a negligible amount by the end of 2025, which should tighten the market for desirable existing space.

Asking rental rates are still expected to dip as basis resets.

An additional value correction over the next 12-18 months is expected as a steady stream of low rate loans maturing into a high-rate environment provides motivation for repricing.

Office users are continuing to respond to stable attendance and slowing employment growth by shrinking their footprints, resulting in ongoing occupancy losses.

Tenants gave back another 20 million SF in the first quarter of 2024, bringing the market's losing streak to eight consecutive quarters.

Shrinking overall demand has produced a negative-sum game in the market for leased space.

There currently appears to be little likelihood of a dramatic change in demand conditions in the next 18-24 months, during which about 25% of leases executed before 2020 are set to expire.

Thus, the outlook is for a continued rise in vacancy, which is expected to approach, if not exceed, 16% by the end of 2025.

As of March 2024, the national office vacancy rate was 13.8%, while our market areas reflected the following vacancy levels at March 2024:

New leasing volume has hovered around 10% below the average amount from 2015-2019.

Much of the decline in volume has been driven by average lease sizes 15-20% smaller than the 2015-2019 average.

Market participants confirm that, while the leasing market is active, typical requirements are smaller, with pre-built spec suites attracting some of the strongest demand.

In the traditional leasing market, however, there has been an ongoing adjustment in per-worker space needs, with new construction winning out.

Buildings completed during the current decade have maintained positive net absorption but older properties have suffered from an extreme lack of demand.

During the next 18-24 months, about 25% of square footage leased before April 2020 is set to expire.

Thus, the outlook is for a continued rise in vacancy, which is expected to increase approximately 1.5% by early 2026.

As of June 2024, national office vacancy rates remained stable at 13.8% compared to March 2024, while our market areas reflected the following vacancy levels:

Springfield, Missouri at 4.5%, St.

Louis at 10.5%, Kansas City at 12.3%, Minneapolis at 11.5%, Dallas-Fort Worth at 18.2%, Chicago at 16.3%, Atlanta at 16.4%, Denver at 17.0%, Phoenix at 16.8% and Charlotte, North Carolina at 14.3%.

The rates are higher for many of these cities compared to March 2024.

retail market is in one of its firmest fundamental positions on record thanks to steadily rising demand, a significant reduction in tenant bankruptcies and store closures, and limited new supply.

Demand for retail space has increased by nearly 42 million SF during the past 12 months and over 200 million SF since the start of 2021.

Demand for retail space has increased by 40.1 million SF during the past 12 months and over 212 million SF since the start of 2021.

While the increase in demand for space has been driven by growth from numerous sources, the most significant gains are from tenants in the food and beverage, discount, off-price, and experiential sectors, which combined accounted for over half of all new leasing activity over the past year.

Only 4.8% of retail space is currently available for lease, the lowest level on record.

While demand for space continues to rise, new retail development activity remains minimal.

Approximately 36.5 million SF of new retail space was delivered across the U.S.

over the past year, more than 40% below the prior 10-year average.

over the past 12 months, which is half of the prior 10-year average.

Most retail construction activity comprises single-tenant build-to-suits or smaller ground-floor spaces in mixed-use developments.

Over 155 million SF of space has been demolished over the past five years, the vast majority of which was attached to, or within, underperforming malls.

Given the structural downshift in activity coupled with the fact that over three-quarters of new deliveries during the past five years have had a tenant in place at delivery, the U.S.

Given the structural downshift in activity coupled with the fact that over three years of new deliveries have typically had a tenant in place at delivery, the

retail market has faced virtually no threat from new supply.

This looks to continue for

the foreseeable future, as retail construction starts fell to new historic lows and higher interest rates challenge the feasibility of many potential new retail developments at current rent levels.

During the first quarter of 2024, national retail vacancy rates remained steady at 4.1% while our market areas reflected the following vacancy levels:

This looks to continue for the foreseeable future, as retail construction starts fell to new historic lows as higher interest rates challenge the feasibility of many new potential retail developments at current rent levels.

Rents continue to rise due to minimal availability and the significant boost in retail sales coming out of the pandemic.

Asking rents for retail spaces have increased by 2.4% over the past year to a new record high of $25.00 per SF.

During the second quarter of 2024, national retail vacancy rates remained steady at 4.1% while our market areas reflected the following vacancy levels:

Springfield, Missouri at 2.2%, St.

Louis at 4.2%, Kansas City at 3.9%, Minneapolis at 2.5%, Dallas-Fort Worth at 4.5%, Chicago at 4.8%, Atlanta at 3.6%, Phoenix at 4.8%, Denver at 3.7%, and Charlotte, North Carolina at 2.6%.

industrial market performance continued to downshift as 2024 kicked off.

The rates are slightly lower for many of these cities compared to March 2024.

industrial market performance continued to downshift in the second quarter of 2024.

While the national vacancy rate is not expected to rise well above its 20-year average of 7.1%, the next 6-12 months could still prove to be the market's most challenging period over the next five years.

Net absorption has remained positive but continued to lose steam, with early 2024 registering the lowest first quarter absorption tally since 2012.

This weakness tied partly to recent 12-year lows in home sales, which has lowered sales of furniture, building materials, and appliances, leading to large distribution center closures by tenants including Bed Bath & Beyond, Ashley Furniture, and Home Depot.

Net absorption has remained positive but continued to lose steam, with the first quarter of 2024 registering the lowest first quarter absorption tally since 2012.

This weakness partly reflects recent 12-year lows in home sales, which has lowered sales of furniture, building materials, and appliances, leading to large distribution center closures by tenants including Bed Bath & Beyond, Ashley Furniture, and Home Depot.

Third-party distributors that leased ahead of their long-term space needs during the pandemic have also been closing facilities they opened during 2020-2022.

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This could set the stage for vacancies to begin tightening again and for rent growth to accelerate thereafter.

Overall growth in real consumer goods spending has been re-accelerating since last spring even as inflation persists.

Large distribution center expansions by companies that sell necessities consumers are still purchasing in high volume despite inflation, including Burlington Coat Factory, TJX Companies, Chuck and Dwight, and Nestle USA, which have all signed new leases larger than 700,000 SF this year.

Overall growth in real consumer goods spending has been re-accelerating since last spring as inflation gradually subsides.

Large distribution center expansions by companies that sell necessities consumers are still purchasing in high volume, including Burlington Coat Factory, TJX Companies, Chuck and Dwight, and Nestle USA, which have all signed new leases larger than 700,000 SF this year.

While a potential stagnation in consumer spending poses downside risks in CoStar's absorption forecast for the next 12 months, high-tech manufacturing will likely be a key driver of leasing from 2024–26.

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The majority of these plants are targeting 2024–26 to begin production, with Arizona, Texas, Georgia, and the Carolinas securing the most new operations.

New deliveries will likely remain elevated for the next six to nine months, driving the national vacancy rate higher.

The trend of slowing absorption and rising space availability rates has been broad-based across major U.S.

Higher interest rates have caused construction starts on new industrial projects to halt.

Given the average construction time of 14 months for large industrial projects, this recent pullback in starts suggests that by late 2024, the number of new projects completing construction may begin to decline.

This may set the stage for vacancies to stabilize or begin tightening again in late 2024, and for rent growth to accelerate thereafter.

For the first quarter of 2024, national industrial vacancy rates increased to 6.2% from 4.5% as of March 31, 2023.

Our market areas reflected the following industrial vacancy levels as of March 2024:

Given the average construction time of 14 months for large industrial projects, this recent pullback in starts signals that by late 2024, the number of new projects completing construction should continue to decline.

For the second quarter of 2024, national industrial vacancy rates increased to 6.6%, from 6.2% for the first quarter of 2024.

Our market areas reflected the following industrial vacancy levels:

Springfield, Missouri at 1.7%, St.

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Our management will continue to monitor regional, national, and global economic indicators such as unemployment, GDP, housing starts and prices, consumer sentiment, commercial real estate price index and commercial real estate occupancy, absorption and rental rates, as these could significantly affect customers in each of our market areas.

The profitability of the Company and, more specifically, the profitability of its primary subsidiary, the Bank, depend primarily on its net interest income, as well as provisions for credit losses and the level of non-interest income and non-interest expense.

The profitability of the Company and, more specifically, the profitability of its primary subsidiary, the Bank, depends primarily on its net interest income, as well as provisions for credit losses and the level of non-interest income and non-interest expense.

Net interest income is the difference between the interest income the Bank earns on its loans and investment portfolios, and the interest it pays on interest-bearing liabilities, which consists mainly of interest paid on deposits and borrowings.

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When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income.

Great Southern’s total assets decreased $35.2 million, or 0.6%, from $5.81 billion at December 31, 2023, to $5.78 billion at March 31, 2024.

Details of the current period changes in total assets are provided below, under “Comparison of Financial Condition at March 31, 2024 and December 31, 2023.”

Net outstanding loans decreased $3.4 million, or 0.1%, from $4.59 billion at December 31, 2023, to $4.59 billion at March 31, 2024.

This decrease was primarily in commercial business loans, commercial real estate loans, construction loans and one- to four-family residential loans, significantly offset by an increase in other residential (multi-family) loans.

Great Southern’s total assets increased $146.4 million, or 2.5%, from $5.81 billion at December 31, 2023, to $5.96 billion at June 30, 2024.

Details of the current period changes in total assets are provided below, under “Comparison of Financial Condition at June 30, 2024 and December 31, 2023.”

Net outstanding loans increased $44.0 million, or 1.0%, from $4.59 billion at December 31, 2023, to $4.63 billion at June 30, 2024.

The increase was primarily in other residential (multi-family) loans and was partially offset by decreases in construction loans and commercial business loans.

As loan demand is affected by a variety of factors, including general economic conditions, and because of the competition we face and our focus on pricing discipline and credit quality, we cannot be assured that our loan growth will match or exceed the average level of growth achieved in prior years.

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Private mortgage insurance is typically required for loan amounts above the 80% level.

Few exceptions occur and would be based on analyses that determined minimal transactional risk to be involved.

Few exceptions occur and would be based on analyses which determined minimal transactional risk to be involved.

We consider these lending practices to be consistent with or more conservative than what we believe to be the norm for banks our size.

At March 31, 2024 and December 31, 2023, 0.2% of our owner occupied one-to four-family residential loans had loan-to-value ratios above 100% at origination.

At March 31, 2024 and December 31, 2023, an estimated 0.4% and 0.4% of total non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.

At both June 30, 2024 and December 31, 2023, 0.2% of our owner occupied one-to four-family residential loans had loan-to-value ratios above 100% at origination and an estimated 0.4% of our non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.

The level of non-performing loans and foreclosed assets affects our net interest income and net income.

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Available-for-sale Securities.

In the three months ended March 31, 2024, available-for-sale securities decreased $12.9 million, or 2.7%, from $478.2 million at December 31, 2023, to $465.3 million at March 31, 2024.

In the six months ended June 30, 2024, available-for-sale securities increased $70.9 million, or 14.8%, from $478.2 million at December 31, 2023, to $549.1 million at June 30, 2024.

In the three months ended June 30, 2024, the Company elected to purchase some fixed rate securities similar to ones already in its portfolio, to provide interest rate protection if market interest rates should fall in future periods.

These securities are expected to yield over 5.00%.

Held-to-maturity Securities.

In the three months ended March 31, 2024, held-to-maturity securities decreased $1.6 million, or 0.8%, from $195.0 million at December 31, 2023, to $193.4 million at March 31, 2024.

In the six months ended June 30, 2024, held-to-maturity securities decreased $3.8 million, or 1.9%, from $195.0 million at December 31, 2023, to $191.2 million at June 30, 2024.

See Note 5 “Investment Securities” in the Notes to Consolidated Financial Statements included in this report for additional information.

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The Company then utilizes these deposit funds, along with FHLBank advances and other borrowings, to meet loan demand or otherwise fund its activities.

In the three months ended March 31, 2024, total deposit balances increased $51.7 million, or 1.1%.

Compared to December 31, 2023, transaction account balances increased $60.4 million, or 1.9%, to $3.17 billion at March 31, 2024, and retail certificates of deposit decreased $32.7 million, or 3.5%, to $915.5 million at March 31, 2024.

The increase in transaction accounts was primarily a result of an increase in various money market accounts as customers sought accounts paying a higher rate of interest.

Retail time deposits decreased due to a decrease in retail certificates

generated through the banking center network.

In the six months ended June 30, 2024, total deposit balances decreased $106.4 million, or 2.3%.

Compared to December 31, 2023, transaction account balances decreased $50.7 million, or 1.6%, to $3.06 billion at June 30, 2024, and retail certificates of deposit decreased $64.2 million, or 6.8%, to $884.0 million at June 30,

The decrease in transaction accounts was primarily a result of a decrease in non-interest-bearing accounts and various NOW accounts, as small businesses and individuals appear to be drawing down their balances to pay for goods and services, or are seeking a higher-yielding alternative.

Retail time deposits decreased due to a decrease in retail certificates generated through the banking center network.

Competition for time deposits remains significant in many of our markets.

Brokered deposits, including IntraFi program purchased funds, were $685.5 million and $661.5 million at March 31, 2024 and December 31, 2023, respectively.

The Company uses brokered deposits of select maturities and interest rate characteristics from time to time to supplement its various funding channels and to manage interest rate risk.

Brokered deposits, including IntraFi program purchased funds, were $670.0 million and $661.5 million at June 30, 2024 and December 31, 2023, respectively.

The Company uses brokered deposits of select maturities from time to time to supplement its various funding channels and to manage interest rate risk.

Our deposit balances may fluctuate depending on customer preferences and our relative need for funding.

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While we do not currently anticipate that our ability to access these sources will be reduced or eliminated in future periods, if this should happen, the limitation on our ability to fund additional loans could have a material adverse effect on our business, financial condition and results of operations.

See “Results of Operations and Comparison for the Three Months Ended March 31, 2024 and 2023 – Liquidity” for further information on funding sources.

See “Results of Operations and Comparison for the Three and Six Months Ended June 30, 2024 and 2023 – Liquidity” below for further information on funding sources.

Securities sold under reverse repurchase agreements with customers.

Securities sold under reverse repurchase agreements with customers increased $1.9 million from $70.9 million at December 31, 2023 to $72.8 million at March 31, 2024.

Securities sold under reverse repurchase agreements with customers increased $3.4 million from $70.8 million at December 31, 2023 to $74.2 million at June 30, 2024.

These balances fluctuate over time based on customer demand for this product.

Short-term borrowings and other interest-bearing liabilities .

The Company’s FHLBank term advances were $-0- at both March 31, 2024 and December 31, 2023.

At March 31, 2024, there were no overnight borrowings from the FHLBank.

At December 31, 2023, there were $251.0 million in overnight borrowings from the FHLBank.

In January 2024, the Bank borrowed $180.0 million under the Federal Reserve Bank’s Bank Term Funding Program (BTFP).

Short term borrowings and other interest-bearing liabilities increased $223.7 million from $252.6 million at December 31, 2023 to $476.3 million at June 30, 2024.

The Company may, from time to time, utilize overnight borrowings, short-term FHLBank advances, and BTFP borrowings from the Federal Reserve Bank of St.

Louis (FRBSTL), depending on relative interest rates.

The Company’s FHLBank term advances were $-0- at both June 30, 2024 and December 31, 2023.

At June 30, 2024 and December 31, 2023, there was $295.0 million and $251.0 million, respectively, in overnight borrowings from the FHLBank, which were included in short term borrowings.

In January 2024, the Bank borrowed $180.0 million under the BTFP program.

The BTFP borrowing, which matures in January 2025 and has a fixed interest rate of 4.83%, may be repaid in full or in part without penalty prior to its stated maturity date.

The line is secured primarily by the Bank’s held-to-maturity investment securities, with assets pledged totaling approximately $193 million at March 31, 2024.

The line is secured primarily by the Bank’s held-to-maturity investment securities, with assets pledged totaling approximately $191.3 million at June 30, 2024.

These funds were primarily used to repay a portion of the Bank’s overnight borrowings from the FHLBank.

Short-term borrowings and other interest-bearing liabilities decreased $71.3 million from $252.6 million at December 31, 2023 to $181.3 million at March 31, 2024.

The Company may utilize overnight borrowings, short-term FHLBank advances, and BTFP borrowings from FRBSTL depending on relative interest rates.

Net Interest Income and Interest Rate Risk Management.

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At December 31, 2019, the Federal Funds rate stood at 1.75%.

In response to the COVID-19 pandemic, the FRB decreased interest rates on two occasions in March 2020, a 0.50% decrease on March 3 and a 1.00% decrease on March 16.

In response to the COVID-19 pandemic, the FRB decreased interest rates on two occasions in March 2020, a 0.50% decrease on March 3rd and a 1.00% decrease on March 16th.

At December 31, 2021, the Federal Funds rate was 0.25%.

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In 2023, the FRB implemented rate increases of 0.25%, 0.25%, 0.25% and 0.25% in February, March, May and July 2023, respectively.

At March 31, 2024, the Federal Funds rate was 5.50%.

Financial markets now expect the possibility of significant further increases in Federal Funds interest rates in 2024 to be unlikely, with interest rate decisions being made at each FRB meeting based on economic data available at the time.

However, the FRB has further indicated, and financial markets now have begun to price in, that it is likely that the Federal Funds interest rate will remain near this peak level for several months before any rate cuts occur.

Great Southern’s loan portfolio includes loans ($1.28 billion at March 31, 2024) tied to various SOFR indices that will be subject to adjustment at least once within 90 days after March 31, 2024.

At December 31, 2023, the Federal Funds rate was 5.50%.

To date in 2024, the FRB has not implemented any rate changes and at June 30, 2024, the Federal Funds rate was 5.50%.

economic data available at the time.

Great Southern’s loan portfolio includes loans ($1.41 billion at June 30, 2024) tied to various SOFR indexes that will be subject to adjustment at least once within 90 days after June 30, 2024.

All of these loans have interest rate floors at various rates.

Great Southern also has a portfolio of loans ($826.7 million at March 31, 2024) tied to a “prime rate” of interest that will adjust immediately or within 90 days of a change to the “prime rate” of interest.

Of these loans, $814.5 million had interest rate floors at various rates.

In addition, Great Southern has a portfolio of loans ($6.7 million at March 31, 2024) tied to an AMERIBOR index that will adjust immediately or within 90 days of a change to the “prime rate” of interest.

Great Southern also has a portfolio of loans ($826 million at June 30, 2024) tied to a “prime rate” of interest that will adjust immediately or within 90 days of a change to the “prime rate” of interest.

All of these loans had interest rate floors at various rates.

At March 31, 2024, nearly all of these SOFR and “prime rate” loans had fully indexed rates that were at or above their floor rate and so are expected to move fully with future market interest rate increases.

A rate cut by the FRB generally would have an anticipated immediate negative impact on the Company’s net interest income due to the large total balance of loans tied to the SOFR indices or the “prime rate” index and will be subject to adjustment at least once within 90 days or loans which generally adjust immediately as the Federal Funds rate adjusts.

In addition, Great Southern has a portfolio of loans ($7 million at June 30, 2024) tied to an AMERIBOR index that will adjust immediately or within 90 days of a change to the “prime rate” of interest.

All of these loans had interest rate floors at various rates.

At June 30, 2024, nearly all of these SOFR and “prime rate” loans had fully-indexed rates that were at or above their floor rate and so are expected to move fully with future market interest rate increases.

A rate cut by the FRB generally would have an anticipated immediate negative impact on the Company’s net interest income due to the large total balance of loans tied to the SOFR indexes or the “prime rate” index and will be subject to adjustment at least once within 90 days or loans which generally adjust immediately as the Federal Funds rate adjusts.

Interest rate floors may at least partially mitigate the negative impact of interest rate decreases.

Loans at their floor rates are, however, subject to the risk that borrowers will seek to refinance elsewhere at the lower market rate.

There may also be a negative impact on the Company’s net interest income if the Company is unable to significantly lower its funding costs due to a highly competitive rate environment, although interest rates on assets may decline further.

There may also be a negative impact on the Company’s net interest income if the Company is unable to significantly lower its funding costs due to a highly competitive rate environment for deposits, although interest rates on assets may decline further.

Conversely, market interest rate increases would normally result in increased interest rates on our SOFR-based, AMERIBOR-based and prime-based loans.

As of March 31, 2024, Great Southern’s interest rate risk models indicate that, generally, rising interest rates are expected to have a modestly positive impact on the Company’s net interest income, while declining interest rates are expected to have a modestly negative impact on net interest income.

As of June 30, 2024, Great Southern’s interest rate risk models indicate that, generally, rising interest rates are expected to have a modestly positive impact on the Company’s net interest income, while declining interest rates are expected to have a modestly negative impact on net interest income.

We model various interest rate scenarios for rising and falling rates, including both parallel and non-parallel shifts in rates.

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Operating expenses consist primarily of salaries and employee benefits, occupancy-related expenses, expenses related to foreclosed assets, postage, FDIC deposit insurance, advertising and public relations, telephone, professional fees, office expenses and other general operating expenses.

Details of the current period changes in non-interest income and non-interest expense are provided below, under “Results of Operations and Comparison for the Three Months Ended March 31, 2024 and 2023.”

Details of the current period changes in non-interest income and non-interest expense are provided below, under “Results of Operations and Comparison for the Three and Six Months Ended June 30, 2024 and 2023.”

Effect of Federal Laws and Regulations

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The Economic Growth Act, among other matters, expands the definition of qualified mortgages which may be held by a financial institution and simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single “Community Bank Leverage Ratio” (“CBLR”) of between 8 and 10 percent.

Upon election, any qualifying depository institution or its holding company that exceeds the CBLR will be considered to have met generally applicable leverage and risk-based regulatory capital requirements and any qualifying depository institution that exceeds the new ratio will be considered “well-capitalized” under the prompt corrective action rules.

Upon election, any qualifying depository institution or its holding company that exceeds the CBLR will be considered to have met generally applicable leverage and risk-based regulatory capital requirements and any qualifying depository institution that exceeds the CBLR will be considered “well-capitalized” under the prompt corrective action rules.

Currently, the CBLR is 9.0%.

The Company and the Bank have chosen to not utilize the new CBLR due to the Company’s size and complexity, including its commercial real estate and construction lending concentrations and significant off-balance sheet funding commitments.

To date, the Company and the Bank have chosen to not utilize the CBLR due to the Company’s size and complexity, including its commercial real estate and construction lending concentrations and significant off-balance sheet funding commitments.

In addition, the Economic Growth Act includes regulatory relief in the areas of examination cycles, call reports, mortgage disclosures and risk weights for certain high-risk commercial real estate loans.

Business Initiatives

Since early 2022, Great Southern has been preparing to convert to a new core banking platform (New System) to be delivered by a third-party vendor.

Since early 2022, Great Southern had been preparing to convert to a new core banking platform (New System) to be delivered by a third-party vendor.

As previously disclosed, the migration to the New System, originally scheduled for the third quarter of 2023, was delayed to mid-2024.

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While discussions were ongoing between the parties for an extended period of time, no meaningful progress was made in resolving the contractual disputes.

The system migration efforts have been beset by a variety of significant issues, including having missed a second conversion date because of continued operational and system problems.

The system migration efforts were beset by a variety of significant issues, including having missed a second conversion date because of continued operational and system problems.

Therefore, Great Southern has taken the following actions to protect its interests.

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District Court for the Western District of Missouri, Southern Division.

The complaint seeks to recover damages caused by the third-party vendor’s material breach of the Master Agreement, inability and/or inaction on the part of the third-party vendor to effectively and timely manage the system migration, along with the third-party vendor’s misrepresentations and omissions.

The complaint seeks to recover damages caused by the third-party vendor’s material breach of the Master Agreement, inability and/or inaction on the part of the third-party vendor to effectively and timely manage the system migration, as well as the third-party vendor’s misrepresentations and omissions.

As of the filing date of this Quarterly Report on Form 10-Q, the third-party vendor has not yet filed a responsive pleading to Great Southern’s complaint.

The parties continue informal settlement discussions, but there is no guarantee that the parties will reach a mutually agreed upon settlement to terminate the litigation.

Great Southern now expects to continue operations with its current core banking provider, which will allow Great Southern to offer its full array of products and services.

A retail banking center in Springfield, Missouri, was consolidated into a nearby banking center in January 2024.

The office at 600 W.

Republic Road was consolidated into the Great Southern banking center located at 2945 W.

Republic Road, a short distance away.

The vacated property was subsequently sold in April 2024.

The Company announced that its 2024 Annual Meeting of Stockholders will be held at 10 a.m.

Central Time on May 8, 2024, and will be held in a virtual format.

Stockholders will be able to attend the Annual Meeting via a live webcast.

Holders of record of Great Southern Bancorp, Inc.

common stock at the close of business on the record date, February 28, 2024, may vote during the live webcast of the Annual Meeting or by proxy.

Please see the Company’s Notice of Annual Meeting and Proxy Statement available on the Company’s website, www.GreatSouthernBank.com, (click “About” then “Investor Relations”) for additional information about the virtual meeting.

Comparison of Financial Condition at March 31, 2024 and December 31, 2023

During the three months ended March 31, 2024, the Company’s total assets decreased by $35.2 million to $5.78 billion.

The decrease was primarily in cash and cash equivalents and investment securities.

Cash and cash equivalents were $171.4 million at March 31, 2024, a decrease of $39.9 million, or 18.9%, from $211.3 million at December 31, 2023.

The Company’s available-for-sale securities decreased $12.9 million, or 2.7%, compared to December 31, 2023.

The decrease was primarily due to normal monthly payments received related to the portfolio of mortgage-backed securities and collateralized mortgage obligations.

The available-for-sale securities portfolio was 8.1% and 8.2% of total assets at March 31, 2024 and December 31, 2023, respectively.

Comparison of Financial Condition at June 30, 2024 and December 31, 2023

During the six months ended June 30, 2024, the Company’s total assets increased by $146.4 million to $5.96 billion.

The increase was primarily in investment securities and loans, partially offset by a decrease in cash and cash equivalents.

Cash and cash equivalents were $186.5 million at June 30, 2024, a decrease of $24.9 million, or 11.8%, from $211.3 million at December 31, 2023.

The Company’s available-for-sale securities increased $70.9 million, or 14.8%, compared to December 31, 2023.

The increase was primarily due to the purchase of several collateralized mortgage obligations and mortgage-backed securities, partially offset by normal monthly payments received related to the portfolio of mortgage-backed securities and collateralized mortgage obligations.

The available-for-sale securities portfolio was 9.2% and 8.2% of total assets at June 30, 2024 and December 31, 2023, respectively.

The Company’s held-to-maturity securities decreased $3.8 million, or 1.9%, compared to December 31, 2023.

The decrease was primarily due to normal monthly payments received related to the portfolio of mortgage-backed securities and collateralized mortgage obligations.

The held-to-maturity securities portfolio was 3.3% and 3.4% of total assets at March 31, 2024 and December 31, 2023, respectively.

Net loans decreased $3.4 million from December 31, 2023, to $4.59 billion at March 31, 2024.

This decrease was primarily in commercial business loans ($58.6 million decrease), commercial real estate loans ($18.4 million decrease), construction loans ($11.8 million decrease) and one- to four-family residential loans ($10.2 million decrease), significantly offset by an increase in other residential (multi-family) loans ($98.2 million increase).

The pipeline of loan commitments and the unfunded portion of construction loans remained strong in the first quarter of 2024.

The held-to-maturity securities portfolio was 3.2% and 3.4% of total assets at June 30, 2024 and December 31, 2023, respectively.

Net loans increased $44.0 million from December 31, 2023, to $4.63 billion at June 30, 2024.

This increase was primarily in other residential (multi-family) loans ($309 million increase), which was partially offset by a decrease in construction loans ($162 million decrease) and commercial business loans ($62 million decrease).

The decrease in commercial business loans was primarily related to a few large loan payoffs in the three months ended March 31, 2024.

Despite the decrease in construction loans, the pipeline of construction loan commitments and the unfunded portion of construction loans remained strong in the six months ending June 30, 2024.

As construction projects were completed, the related loans were either moved from the construction category to the appropriate permanent loan categories or paid off.

Total liabilities decreased $28.6 million, from $5.24 billion at December 31, 2023 to $5.21 billion at March 31, 2024.

The decrease was primarily due to decreases in short-term borrowings, partially offset by an increase in transaction account deposits and brokered deposits.

Total deposits increased $51.7 million, or 1.1%, from $4.72 billion at December 31, 2023 to $4.77 billion at March 31, 2024.

Transaction account balances increased $60.4 million, from $3.11 billion at December 31, 2023 to $3.17 billion at March 31, 2024.

Total interest-bearing checking accounts increased $79.2 million while non-interest-bearing checking accounts decreased $18.8 million.

Retail certificates of deposit decreased $32.7 million compared to December 31, 2023, to $915.5 million at March 31, 2024.

Customer retail time deposits initiated through our banking center network decreased $29.8 million and time deposits initiated through our national internet network decreased $2.9 million.

Brokered deposits increased $24.0 million to $685.5 million at March 31, 2024, compared to $661.5 million at December 31, 2023.

Brokered deposits were utilized to offset reductions in balances in other deposit categories and borrowings.

Total liabilities increased $149.4 million, from $5.24 billion at December 31, 2023 to $5.39 billion at June 30, 2024.

This increase was primarily due to an increase in short-term borrowings, partially offset by a reduction in transaction account deposits and certificate of deposit accounts.

Total deposits decreased $106.4 million, or 2.3%, from $4.72 billion at December 31, 2023 to $4.62 billion at June 30, 2024.

Transaction account balances decreased $50.7 million, from $3.11 billion at December 31, 2023 to $3.06 billion at June 30, 2024.

Total interest-bearing checking accounts decreased $25.5 million, while non-interest-bearing checking accounts decreased $25.3 million.

Retail certificates of deposit decreased $64.2 million compared to December 31, 2023, to $884.0 million at June 30, 2024 due to competition for deposits.

Brokered deposits increased $8.5 million to $670.0 million at June 30, 2024, compared to $661.5 million at December 31, 2023.

Brokered deposits were utilized to offset reductions in other deposit categories and in borrowings.

The Company has the capacity to further expand its use of brokered deposits if it chooses to do so.

Of the total brokered deposits at March 31, 2024, $300.0 million were floating rate deposits, which adjust daily, based on the effective federal funds rate index.

The Company’s term FHLBank advances were $-0- at both March 31, 2024 and December 31, 2023.

At March 31, 2024 and December 31, 2023, there were no borrowings from the FHLBank, other than overnight borrowings, which are included in the short-term borrowings category.

Of the total brokered deposits at June 30, 2024, $300.0 million were floating rate deposits, which adjust daily, based on the effective federal funds rate index.

The Company’s term FHLBank advances were $-0- at both June 30, 2024 and December 31, 2023.

At June 30, 2024 and December 31, 2023, there were no borrowings from the FHLBank, other than overnight borrowings, which are included in the short-term borrowings category.

The Company may utilize both overnight borrowings and short-term FHLBank advances depending on relative interest rates.

Short-term borrowings and other interest-bearing liabilities decreased $71.3 million from $252.6 million at December 31, 2023 to $181.3 million at March 31, 2024.

At March 31, 2024, none of this total was overnight borrowings from the FHLBank, compared to $154.5 million of overnight borrowings from the FHLBank at December 31, 2023.

Short-term borrowings and other interest-bearing liabilities increased $223.7 million from $252.6 million at December 31, 2023 to $476.3 million at June 30, 2024.

At June 30, 2024, $295.0 million of this total was overnight borrowings from the FHLBank, which was used to fund loan originations and purchases of investment securities, compared to $251.0 million of overnight borrowings from the FHLBank at December 31, 2023.

In January 2024, the Bank borrowed $180.0 million under the BTFP.

The BTFP borrowing, which matures in January 2025 and has a fixed interest rate of 4.83%, may be repaid in full or in part without penalty prior to its stated maturity date.

The line is secured primarily by the Bank’s held-to-maturity investment securities, with assets pledged totaling approximately $193 million as of March 31, 2024.

The line is secured primarily by the Bank’s held-to-maturity investment securities, with assets pledged totaling approximately $191.3 million as of June 30, 2024.

These funds were primarily used to repay a portion of the Bank’s overnight borrowings from the FHLBank.

Securities sold under reverse repurchase agreements with customers increased $1.9 million, or 2.7%, from $70.9 million at December 31, 2023 to $72.8 million at March 31, 2024.

Securities sold under reverse repurchase agreements with customers increased $3.4 million, or 4.7%, from $70.8 million at December 31, 2023 to $74.2 million at June 30, 2024.

These balances fluctuate over time based on customer demand for this product.

Total stockholders’ equity decreased $6.7 million, from $571.8 million at December 31, 2023 to $565.2 million at March 31, 2024.

Accumulated other comprehensive loss (a reduction in equity) increased $10.0 million during the three months ended March 31, 2024, primarily due to decreases in the fair value of available-for-sale investment securities and the fair value of cash flow hedges, as a result of increased market interest rates.

Stockholders’ equity also decreased due to repurchases of the Company’s common stock totaling $5.8 million and dividends declared on common stock of $4.7 million.

Partially offsetting these decreases were net income of $13.4 million for the three months ended March 31, 2024 and a $692,000 increase in stockholders’ equity due to stock option exercises.

Results of Operations and Comparison for the Three Months Ended March 31, 2024 and 2023

Net income was $13.4 million for the three months ended March 31, 2024 compared to $20.5 million for the three months ended March 31, 2023.

This decrease of $7.1 million, or 34.5%, was primarily due to a decrease in net interest income of $8.4 million, or 15.7%, and a decrease in non-interest income of $1.1 million, or 13.7%, partially offset by a decrease in income tax expense of $2.3 million, or 42.4%.

Total stockholders’ equity decreased $3.0 million, from $571.8 million at December 31, 2023 to $568.8 million at June 30, 2024.

Accumulated other comprehensive loss (a reduction in equity) increased $13.0 million during the six months ended June 30, 2024, primarily due to decreases in the fair value of available-for-sale investment securities and the fair value of cash flow hedges, as a result of increased market interest rates.

Stockholders’ equity decreased due to repurchases of the Company’s common stock totaling $12.4 million and dividends declared on common stock of $9.3 million.

Partially offsetting these decreases were net income of $30.4 million for the six months ended June 30, 2024 and a $1.4 million increase in stockholders’ equity due to stock option exercises.

Results of Operations and Comparison for the Three and Six Months Ended June 30, 2024 and 2023

Net income was $17.0 million for the three months ended June 30, 2024 compared to $18.3 million for the three months ended June 30, 2023.

This decrease of $1.3 million, or 7.3%, was primarily due to a decrease in net interest income of $1.3 million, or 2.7%, an increase in non-interest expense of $1.7 million, or 4.9% and an increase in provision for credit losses on unfunded commitments of $1.0 million, or 62.5%, partially offset by an increase in non-interest income of $2.1 million, or 26.6%, and a decrease in income tax expense of $627,000, or 14.0%.

Net income was $30.4 million for the six months ended June 30, 2024 compared to $38.8 million for the six months ended June 30, 2023.

This decrease of $8.4 million, or 21.6%, was primarily due to a decrease in net interest income of $9.7 million, or 9.6%, an increase in non-interest expense of $1.7 million, or 2.4%, and an increase in provision for credit losses on loans and unfunded commitments of $968,000, or 102.4%.

The provision for credit losses on loans decreased $1.0 million, while the provision for credit losses on unfunded commitments increased $2.0 million.

These items were partially offset by a decrease in income tax expense of $3.0 million, or 29.6%, and an increase in non-interest income of $981,000, or 6.3%.

Total Interest Income

Total interest income increased $5.9 million, or 8.3%, during the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Total interest income increased $7.3 million, or 9.9%, during the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

The increase was due to a $6.9 million increase in interest income on loans and a $456,000 increase in interest income on investment securities and other interest-earning assets.

Interest income from loans and other interest-earning assets increased during the three months ended March 31, 2024 compared to the same period in 2023 due to higher average balances and higher average rates of interest.

Interest income from investment securities increased during the three-months ended March 31, 2024 compared to the three-months ended March 31, 2023, primarily due to higher average rates of interest on investment securities mostly offset by lower average balances of investment securities.

Interest income from loans increased during the three months ended June 30, 2024 compared to the same period in 2023 due to higher average balances and higher average rates of interest.

Interest income from investment securities and other interest-earning assets increased during the three months ended June 30, 2024 compared to the same period in 2023 due to higher average rates of interest.

Total interest income increased $13.2 million, or 9.1%, during the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

The increase was due to a $12.5 million increase in interest income on loans and a $745,000 increase in interest income on investment securities and other interest-earning assets.

Interest income from loans increased during the six months ended June 30,

2024 compared to the same period in 2023 due to higher average balances and higher average rates of interest.

Interest income from investment securities and other interest-earning assets increased during the six months ended June 30, 2024 compared to the same period in 2023 due to higher average rates of interest, partially offset by slightly lower average balances of investment securities.

Interest Income – Loans

During the three months ended March 31, 2024 compared to the three months ended March 31, 2023, interest income on loans increased $4.8 million due to higher average interest rates on loans.

The average yield on loans increased from 5.76% during the three months ended March 31, 2023, to 6.13% during the three months ended March 31, 2024.

During the three months ended June 30, 2024 compared to the three months ended June 30, 2023, interest income on loans increased $6.0 million due to higher average interest rates on loans.

The average yield on loans increased from 5.84% during the three months ended June 30, 2023, to 6.37% during the three months ended June 30, 2024.

This increase was primarily due to the repricing of floating rate loans as market interest rates increased.

Interest income on loans also increased $878,000 as the result of higher average loan balances, which increased from $4.61 billion during the three months ended March 31, 2023, to $4.67 billion during the three months ended March 31, 2024.

Interest income on loans also increased $834,000 as the result of higher average loan balances, which increased from $4.63 billion during the three months ended June 30, 2023, to $4.69 billion during the three months ended June 30, 2024.

Since the end of 2022, loan originations and net loan growth have been muted;

however, some loan growth has come as a result of the funding of previously approved but unfunded balances on construction loans and the slowed loan prepayments in 2023 and 2024, due to the increase in market interest rates.

however, some loan growth has come as a result of the funding of previously approved but unfunded balances on construction loans and a slowdown in loan prepayments in 2023 and 2024, due to higher market interest rates.

During the six months ended June 30, 2024 compared to the six months ended June 30, 2023, interest income on loans increased $10.8 million due to higher average interest rates on loans.

The average yield on loans increased from 5.80% during the six months ended June 30, 2023, to 6.25% during the six months ended June 30, 2024.

This increase was primarily due to the repricing of floating rate loans due to higher market interest rates.

Interest income on loans also increased $1.7 million as the result of higher average loan balances, which increased from $4.62 billion during the six months ended June 30, 2023, to $4.68 billion during the six months ended June 30, 2024.

In October 2018, the Company entered into an interest rate swap transaction as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans.

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This has had the effect of reducing AOCI and increasing Net Interest Income and Retained Earnings over the periods.

The Company recorded interest income related to the interest rate swap of $2.0 million in each of the three months ended March 31, 2024 and 2023.

At March 31, 2024, the Company expected to have a sufficient amount of eligible variable rate loans to continue to accrete this interest income ratably in future periods.

The Company recorded interest income related to the interest rate swap of $2.0 million in each of the three months ended June 30, 2024 and 2023.

The Company recorded $4.1 million of interest income related to the swap in the six months ended June 30, 2024 and $4.0 million of interest income related to the swap in the six months ended June 30, 2023.

At June 30, 2024, the Company expected to have a sufficient amount of eligible variable rate loans to continue to accrete this interest income ratably in future periods.

If this expectation changes and the amount of eligible variable rate loans decreases significantly, the Company may be required to recognize this interest income more rapidly.

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If one-month USD-LIBOR/SOFR exceeded the fixed rate of interest, the Company paid net settlements to the counterparty and recorded those net payments as a reduction of interest income on loans.

The Company recorded a reduction in loan interest income related to this swap transaction of $1.9 million and $2.2 million in the three months ended March 31, 2024 and 2023, respectively.

As this interest rate swap has reached its contractual termination date, there will be no further interest income impacts related to this swap.

The Company recorded a reduction of loan interest income related to this swap transaction of $1.9 million in the six months ended June 30, 2024.

The Company recorded a reduction of loan interest income related to this swap transaction of $2.6 million and $4.7 million, respectively, in the three and six months ended June 30, 2023.

As this interest rate swap reached its contractual termination date of March 1, 2024, there was no impact from this swap in the three months ended June 30, 2024, and there will be no further interest income impact related to this swap.

In July 2022, the Company entered into two additional interest rate swap transactions as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans.

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To the extent the fixed rate of interest exceeds the floating rate of interest, the Company receives net interest settlements, which are recorded as loan interest income.

If the floating rate of interest exceeds the fixed rate of interest, the Company pays net settlements to the counterparty and records those net payments as a reduction of interest income on loans.

The Company recorded a reduction of loan interest income related to these swap transactions of $2.8 million in the three months ended March 31, 2024, compared to no reduction of interest income related to these swap transactions in the 2023 period.

At March 31, 2024, the USD-Prime rate was 8.50% and the one-month USD-SOFR OIS rate was 5.32240%.

If the floating rate of interest exceeds the fixed rate of interest, the Company pays net settlements to the counterparty and records those net

payments as a reduction of interest income on loans.

The Company recorded a reduction of loan interest income related to these swap transactions of $2.8 million in the three months ended June 30, 2024, compared to a $1.7 million reduction of interest income in the three months ended June 30, 2023.

The Company recorded a reduction of loan interest income related to these swap transactions of $5.5 million in the six months ended June 30, 2024, compared to a $1.7 million reduction of interest income in the the six months ended June 30, 2023.

At June 30, 2024, the USD-Prime rate was 8.50% and the one-month USD-SOFR OIS rate was 5.33643%.

If market interest rates remain near their current levels, the Company’s interest rate swaps will continue to have a negative impact on net interest income.

Interest Income – Investments and Other Interest-earning Assets

Interest income on investments increased $6,000 in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Interest income increased $63,000 as a result of higher average interest rates from 2.87% during the three months ended March 31, 2023, to 3.01% during the three months ended March 31, 2024.

Substantially offsetting that increase, interest income decreased $57,000 as a result of a decrease in average balances from $706.9 million during the three months ended March 31, 2023, to $669.7 million during the three months ended March 31, 2024.

Interest income on investments increased $364,000 in the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

Interest income increased $383,000 as a result of higher average interest rates from 2.86% during the three months ended June 30, 2023, to 3.09% during the three month period ended June 30, 2024.

Partially offsetting that increase, interest income decreased $19,000 as a result of a decrease in average balances from $699.0 million during the three months ended June 30, 2023, to $696.2 million during the three months ended June 30, 2024.

Average balances of securities decreased primarily due to normal monthly payments received related to the portfolio of U.S.

Government agency mortgage-backed securities and collateralized mortgage obligations.

Interest income on other interest-earning assets increased $283,000 in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Interest income increased $177,000 as a result of higher average interest rates from 4.51% during the three months ended March 31, 2023, to 5.22% during the three months ended March 31, 2024.

Interest income increased $106,000 as a result of an increase in average balances from $91.8 million during the three months ended March 31, 2023, to $100.5 million during the three months ended March 31, 2024.

Interest income on investments increased $371,000 in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Interest income increased $663,000 as a result of higher average interest rates from 2.86% during the six months ended June 30, 2023, to 3.05% during the six month period ended June 30, 2024.

Partially offsetting that increase, interest income decreased $292,000 as a result of a decrease in average balances from $702.9 million during the six months ended June 30, 2023, to $683.0 million during the six months ended June 30, 2024.

Average balances of securities decreased primarily due to normal monthly payments received related to the portfolio of U.S.

Government agency mortgage-backed securities and collateralized mortgage obligations.

Proceeds from repayment of securities were generally used to fund loan growth and, to a limited extent, purchase additional securities.

Interest income on other interest-earning assets increased $92,000 in the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

Interest income increased $88,000 as a result of higher average interest rates from 4.93% during the three months ended June 30, 2023, to 5.31% during the three months ended June 30, 2024.

Interest income increased $4,000 as a result of a slight increase in average balances from $97.0 million during the three months ended June 30, 2023, to $97.3 million during the three months ended June 30, 2024.

Interest income on other interest-earning assets increased $374,000 in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Interest income increased $263,000 as a result of higher average interest rates from 4.73% during the six months ended June 30, 2023, to 5.26% during the six months ended June 30, 2024.

Interest income increased $111,000 as a result of an increase in average balances from $94.4 million during the six months ended June 30, 2023, to $98.9 million during the six months ended June 30, 2024.

Total Interest Expense

Total interest expense increased $14.3 million, or 78.3%, during the three months ended March 31, 2024, when compared with the three months ended March 31, 2023, due to an increase in interest expense on deposits of $13.0 million, or 88.6%, an increase in interest expense on short-term borrowings of $1.3 million, or 71.0%, and an increase in interest expense on subordinated debentures issued to capital trusts of $61,000, or 15.5%, partially offset by the decrease in interest expense on securities sold under reverse repurchase agreements of $9,000, or 2.6%.

Total interest expense increased $8.6 million, or 33.9%, during the three months ended June 30, 2024, when compared with the three months ended June 30, 2023, due to an increase in interest expense on deposits of $6.0 million, or 27.5%, an increase in interest expense on short-term borrowings of $2.4 million, or 125.1%, an increase in interest expense on securities sold under reverse repurchase agreements of $173,000, or 78.3%, and an increase in interest expense on subordinated debentures issued to capital trusts of $28,000, or 6.6%.

Total interest expense increased $22.9 million, or 52.4%, during the six months ended June 30, 2024, when compared with the six months ended June 30, 2023, due to an increase in interest expense on deposits of $19.0 million, or 52.1%, an increase in interest expense on short-term borrowings of $3.7 million, or 99.2%, an increase in interest expense on securities sold under reverse repurchase agreements of $164,000, or 29.1%, and an increase in interest expense on subordinated debentures issued to capital trusts of $89,000, or 10.9%.

Interest Expense – Deposits

Interest expense on demand and savings deposits increased $5.0 million due to average rates of interest that increased from 0.81% in the three months ended March 31, 2023 to 1.71% in the three months ended March 31, 2024.

Interest rates paid on demand deposits were higher in the 2024 period due to significant increases in overall market rates.

Interest expense on demand deposits increased $80,000, due to an increase in average balances from $2.18 billion during the three months ended March 31, 2023 to $2.22 billion during the three months ended March 31, 2024.

Interest expense on demand and savings deposits increased $2.8 million due to average rates of interest that increased from 1.25% in the three months ended June 30, 2023 to 1.76% in the three months ended June 30, 2024.

Interest rates paid on demand deposits were

higher in the 2024 period due to significant increases in overall market rates and competition for deposits.

Interest expense on demand deposits increased $127,000, due to an increase in average balances from $2.19 billion during the three months ended June 30, 2023, to $2.23 billion during the three months ended June 30, 2024.

The Company also experienced increased balances in various types of money market accounts due to the increase in average rates on these accounts.

Interest expense on time deposits increased $4.4 million as a result of an increase in average rates of interest from 2.07% during the three months ended March 31, 2023, to 3.93% during the three months ended March 31, 2024.

Partially offsetting this increase, interest expense on time deposits decreased $373,000 due to a decrease in average balances of time deposits from $1.02 billion during the three months ended March 31, 2023 to $937.7 million in the three months ended March 31, 2024.

Interest expense on demand and savings deposits increased $7.9 million due to average rates of interest that increased from 1.03% in the six months ended June 30, 2023 to 1.74% in the six months ended June 30, 2024.

Interest rates paid on demand deposits were higher in the 2024 period due to significant increases in overall market rates and competition for deposits.

Interest expense on demand deposits increased $208,000, due to an increase in average balances from $2.19 billion during the six months ended June 30, 2023, to $2.23 billion during the six months ended June 30, 2024.

The Company also experienced increased balances in various types of money market accounts due to the increase in average rates on these accounts.

Interest expense on time deposits increased $2.6 million as a result of an increase in average rates of interest from 2.85% during the three months ended June 30, 2023, to 4.08% during the three months ended June 30, 2024.

Partially offsetting this increase, interest expense on time deposits decreased $575,000 due to a decrease in average balances of time deposits from $987.5 million during the three months ended June 30, 2023 to $894.5 million in the three months ended June 30, 2024.

A large portion of the Company’s certificate of deposit portfolio matures within six to twelve months and therefore reprices fairly quickly;

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Competition for time deposits remains significant in our market areas, and upon maturity, we lost some of these deposits to competitors.

Older certificates of deposit that renewed or were replaced with new deposits generally resulted in the Company paying a higher rate of interest compared to the year-ago period due to increases in market interest rates and targeted promotions during 2023 and into early 2024.

Interest expense on brokered deposits increased $3.0 million due to an increase in average balances from $456.8 million during the three months ended March 31, 2023 to $688.8 million during the three months ended March 31, 2024.

Interest expense on brokered deposits increased $921,000 due to average rates of interest that increased from 4.53% in the three months ended March 31, 2023 to 5.25% in the three months ended March 31, 2024.

Interest expense on time deposits increased $7.0 million as a result of an increase in average rates of interest from 2.46% during the six months ended June 30, 2023, to 4.00% during the six months ended June 30, 2024.

Partially offsetting this increase, interest expense on time deposits decreased $948,000 due to a decrease in average balances of time deposits from $1.00 billion during the six months ended June 30, 2023 to $916.1 million in the six months ended June 30, 2024.

As noted above, a large portion of the Company’s certificate of deposit portfolio matures within six to twelve months and therefore reprices fairly quickly.

Interest expense on brokered deposits increased $571,000, due to an increase in average balances from $637.6 million during the three months ended June 30, 2023 to $683.3 million during the three months ended June 30, 2024.

Interest expense on brokered deposits increased $441,000 due to average rates of interest that increased from 4.97% in the three months ended June 30, 2023 to 5.25% in the three months ended June 30, 2024.

Brokered deposits added during 2023 and 2024 were at higher market rates than brokered deposits previously issued.

The Company uses brokered deposits of select maturities and interest rate structures from time to time to supplement its various funding channels and to manage interest rate risk.

Interest expense on brokered deposits increased $3.6 million, due to an increase in average balances from $547.7 million during the six months ended June 30, 2023 to $686.1 million during the six months ended June 30, 2024.

Interest expense on brokered deposits increased $1.3 million due to average rates of interest that increased from 4.79% in the six months ended June 30, 2023 to 5.25% in the six months ended June 30, 2024.

As noted above, brokered deposits added during 2023 and 2024 were at higher market rates than brokered deposits previously issued.

Interest Expense – FHLBank Advances;

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Subordinated Debentures Issued to Capital Trusts and Subordinated Notes

FHLBank term advances were not utilized during the three months ended March 31, 2024 and 2023.

Interest expense on reverse repurchase agreements decreased $27,000 due to lower average balances.

The average balance of repurchase agreements decreased from $147.0 million in the three months ended March 31, 2023 to $74.5 million in the three months ended March 31, 2024, which was due to changes in customers’ desire for this product, which can fluctuate.

Partially offsetting this decrease, interest expense on reverse repurchase agreements increased $18,000 due to higher average interest rates during the three months ended March 31, 2024 when compared to the three months ended March 31, 2023.

The average rate of interest was 1.80% for the three months ended March 31, 2024 compared to 0.94% for the three months ended March 31, 2023.

Interest expense on short-term borrowings (including overnight borrowings from the FHLBank and BTFP borrowings from FRBSTL) and other interest-bearing liabilities increased $1.1 million during the three months ended March 31, 2024 when compared to the three months ended March 31, 2023 due to higher average balances.

The average balance of short-term borrowings and other interest-bearing liabilities increased from $151.8 million in the three months ended March 31, 2023 to $241.6 million in the three months ended March 31, 2024, which was primarily due to changes in the Company’s funding needs and the mix of funding, which can fluctuate.

Interest expense on short-term borrowings and other interest-bearing liabilities increased $126,000 during the three months ended March 31, 2024 when compared to the three months ended March 31, 2023 due to higher average rates of interest.

The average rate of interest was 5.07% for the three months ended March 31, 2024, compared to 4.75% for the three months ended March 31, 2023.

During the three months ended March 31, 2024, compared to the three months ended March 31, 2023, interest expense on subordinated debentures issued to capital trusts increased $61,000 due to higher average interest rates.

The average interest rate was

7.08% in the three months ended March 31, 2024 compared to 6.18% in the three months ended March 31, 2023.

The subordinated debentures are variable-rate debentures, which bear interest at an average rate of three-month SOFR (originally LIBOR), plus 1.60%, adjusting quarterly, which was 7.17% at March 31, 2024.

There was no change in the average balance of the subordinated debentures between the 2023 and 2024 periods.

FHLBank term advances were not utilized during the three and six months ended June 30, 2024 and 2023.

Interest expense on reverse repurchase agreements increased $101,000 due to higher average balances.

The average balance of repurchase agreements increased $21.7 million from $55.3 million in the three months ended June 30, 2023 to $77.0 million in the three months ended June 30, 2024, due to changes in customers’ desire for this product, which can fluctuate.

Interest expense on reverse repurchase agreements increased $72,000 due to higher average interest rates during the three months ended June 30, 2024 when compared to the three months ended June 30, 2023.

The average rate of interest was 1.60% for the three months ended June 30, 2023 compared to 2.06% for the three months ended June 30, 2024, due to higher market interest rates.

Interest expense on reverse repurchase agreements increased $252,000 due to higher average interest rates during the six months ended June 30, 2024 when compared to the six months ended June 30, 2023.

The average rate of interest was 1.12% for the six months ended June 30, 2023 compared to 1.93% for the six months ended June 30, 2024, due to higher market interest rates.

Partially offsetting this increase, interest expense on reverse repurchase agreements decreased $88,000 due to lower average balances.

The average balance of repurchase agreements decreased $25.2 million from $100.9 million in the six months ended June 30, 2023 to $75.7 million in the six months ended June 30, 2024, due to changes in customers’ desire for this product.

Interest expense on short-term borrowings (including overnight borrowings from the FHLBank and BTFP borrowings from FRBSTL) and other interest-bearing liabilities increased $2.5 million during the three months ended June 30, 2024 when compared to the three months ended June 30, 2023 due to higher average balances.

The average balance of short-term borrowings and other interest-bearing liabilities increased $190.7 million from $148.6 million in the three months ended June 30, 2023 to $339.3 million in the three months ended June 30, 2024, primarily due to changes in the Company’s deposits and the mix of funding, which can fluctuate.

Partially offsetting this increase, interest expense on short-term borrowings (including overnight borrowings from the FHLBank and BTFP borrowings from FRBSTL) and other interest-bearing liabilities decreased $22,000 during the three months ended June 30, 2024 when compared to the three months ended June 30, 2023 due to lower average rates of interest.

The average rate of interest was 5.24% for the three months ended June 30, 2023, compared to 5.18% for the three months ended June 30, 2024.

The decrease in the average rate of interest was primarily due to the 2024 period including the BTFP borrowing, which had a lower rate of interest than the FHLB overnight borrowings.

Interest expense on short-term borrowings (including overnight borrowings from the FHLBank and BTFP borrowings from FRBSTL) and other interest-bearing liabilities increased $3.6 million during the six months ended June 30, 2024 when compared to the six months ended June 30, 2023 due to higher average balances.

The average balance of short-term borrowings and other interest-bearing liabilities increased $140.2 million from $150.2 million in the six months ended June 30, 2023 to $290.4 million in the six months ended June 30, 2024, primarily due to changes in the Company’s deposits and the mix of funding.

Interest expense on short-term borrowings (including overnight borrowings from the FHLBank and BTFP borrowings from FRBSTL) and other interest-bearing liabilities increased $106,000 during the six months ended June 30, 2024 when compared to the six months ended June 30, 2023 due to higher average rates of interest.

The average rate of interest was 5.00% for the six months ended June 30, 2023, compared to 5.14% for the six months ended June 30, 2024.

During the three months ended June 30, 2024, compared to the three months ended June 30, 2023, interest expense on subordinated debentures issued to capital trusts increased $28,000 due to higher average interest rates.

The average interest rate was 7.08% in the three months ended June 30, 2024 compared to 6.63% in the three months ended June 30, 2023.

There was no change in the average balance of the subordinated debentures between the 2023 and 2024 three-month periods.

During the six months ended June 30, 2024, compared to the six months ended June 30, 2023, interest expense on subordinated debentures issued to capital trusts increased $89,000 due to higher average interest rates.

The average interest rate was 7.08% in the six months ended June 30, 2024 compared to 6.41% in the six months ended June 30, 2023.

The subordinated debentures are variable-rate debentures, as stated above.

There was no change in the average balance of the subordinated debentures between the 2023 and 2024 six-month periods.

In June 2020, the Company issued $75.0 million of 5.50% fixed-to-floating rate subordinated notes due June 15, 2030.

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These issuance costs are amortized over the expected life of the notes, which is five years from the issuance date, impacting the overall interest expense on the notes.

There was no change in the interest expense on subordinated notes during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

There was no change in the interest expense on subordinated notes during the three or six months ended June 30, 2024, compared to the three and six months ended June 30, 2023.

Net Interest Income

Net interest income for the three months ended March 31, 2024 decreased $8.4 million to $44.8 million compared to $53.2 million for the three months ended March 31, 2023.

Net interest margin was 3.32% in the three months ended March 31, 2024, compared to 3.99% in the three months ended March 31, 2023, a decrease of 67 basis points, or 16.8%.

Net interest income for the three months ended June 30, 2024 decreased $1.3 million to $46.8 million compared to $48.1 million for the three months ended June 30, 2023.

Net interest margin was 3.43% in the three months ended June 30, 2024, compared to 3.56% in the three months ended June 30, 2023, a decrease of 13 basis points, or 3.7%.

The Company experienced increases in interest income on both loans and investment securities.

The Company experienced increases in interest expense on deposits, short-term borrowings and subordinated debentures issued to capital trust.

The Company’s overall average interest rate spread decreased 87 basis points, or 24.6%, from 3.53% during the three months ended March 31, 2023 to 2.66% during the three months ended March 31, 2024.

The decrease was due to a 124 basis point increase in the weighted average rate paid on interest-bearing liabilities, partially offset by a 37 basis point increase in the weighted average yield on interest-earning assets.

The Company experienced increases in interest expense on deposits, short-term borrowings, subordinated debentures issued to capital trust and securities sold under reverse repurchase agreements with customers.

Net interest income for the six months ended June 30, 2024 decreased $9.7 million to $91.6 million compared to $101.3 million for the six months ended June 30, 2023.

Net interest margin was 3.38% in the six months ended June 30, 2024, compared to 3.77% in the six months ended June 30, 2023, a decrease of 39 basis points, or 10.3%.

The Company experienced increases in interest income on both loans and investment securities.

The Company’s overall average interest rate spread decreased 19 basis points, or 6.6%, from 2.96% during the three months ended June 30, 2023 to 2.77% during the three months ended June 30, 2024.

The decrease was due to a 69 basis point increase in the weighted average rate paid on interest-bearing liabilities, partially offset by a 50 basis point increase in the weighted average yield earned on interest-earning assets.

In comparing the two periods, the yield on loans increased 53 basis points, the yield on investment securities increased 23 basis points and the yield on other interest-earning assets increased 38 basis points.

The rate paid on deposits increased 127 basis points, the rate paid on reverse repurchase agreements increased 86 basis points, the rate paid on short-term borrowings and other interest-bearing liabilities increased 32 basis points, and the rate paid on subordinated debentures issued to capital trusts increased 90 basis points.

The rate paid on deposits increased 64 basis points, the rate paid on reverse repurchase agreements increased 46 basis points, the rate paid on short-term borrowings and other interest-bearing liabilities decreased 6 basis points and the rate paid on subordinated debentures issued to capital trust increased 45 basis points.

Interest rates earned on loans and paid on deposits are affected by the mix of the loan and deposit portfolios, the stated maturity of loans and time deposits, the amount of fixed-rate and variable-rate loans and other repricing characteristics.

In 2023, overall competition for deposits intensified as a few banks experienced significant liquidity issues in March 2023 and market rates moved higher more rapidly.

Overall competition for deposits has remained elevated in early 2024.

In 2023, overall competition for deposits intensified as a few banks experienced significant liquidity issues in March and April 2023 and market rates moved higher more rapidly.

Overall competition for deposits has remained elevated in 2024 and market interest rates have remained higher in 2024.

The Company’s overall average interest rate spread decreased 53 basis points, or 16.4%, from 3.24% during the six months ended June 30, 2023 to 2.71% during the six months ended June 30, 2024.

The decrease was due to a 96 basis point increase in the weighted average rate paid on interest-bearing liabilities, partially offset by a 43 basis point increase in the weighted average yield earned on interest-earning assets.

In comparing the two periods, the yield on loans increased 45 basis points, the yield on investment securities increased 19 basis points and the yield on other interest-earning assets increased 53 basis points.

The rate paid on deposits increased 95 basis points, the rate paid on reverse repurchase agreements increased 81 basis points, the rate paid on short-term borrowings and other interest-bearing liabilities increased 14 basis points and the rate paid on subordinated debentures issued to capital trust increased 67 basis points.

For additional information on net interest income components, refer to the “Average Balances, Interest Rates and Yields” tables in this Quarterly Report on Form 10-Q.

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Historical credit loss experience provides the basis for the estimation of expected credit losses.

Adjustments to historical loss information are made for changes in current loan-specific risk characteristics such as underwriting standards, portfolio mix, delinquency level or term, as well as for changes in economic conditions, including but not limited to, changes in the national unemployment rate, commercial real estate price index, consumer sentiment, gross domestic product (GDP) and construction spending.

Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as changes in underwriting standards, portfolio mix, delinquency level or term, as well as for changes in economic conditions, including but not limited to, changes in the national unemployment rate, commercial real estate price index, consumer sentiment, gross domestic product (GDP) and construction spending.

Challenging or worsening economic conditions from higher inflation or interest rates, COVID-19 and subsequent variant outbreaks or similar events, global unrest or other factors may lead to increased losses in the portfolio and/or requirements for an increase in provision expense.

Management maintains various controls in an attempt to identify and limit future losses, such as a watch list of problem loans and potential problem loans, documented loan administration policies and loan review staff to review the quality and anticipated collectability of the portfolio.

anticipated collectability of the portfolio.

Additional procedures provide for frequent management review of the loan portfolio based on loan size, loan type, delinquencies, financial analysis, ongoing correspondence with borrowers and problem loan workouts.

Management determines which loans are collateral-dependent, evaluates risk of loss and makes additional provisions to expense, if necessary, to maintain the allowance at a satisfactory level.

During the three months ended March 31, 2024, the Company recorded provision expense of $500,000 on its portfolio of outstanding loans, compared to a $1.5 million provision expense during the three months ended March 31, 2023.

In the three months ended March 31, 2024 and 2023, the Company experienced net charge offs of $83,000 and net recoveries of $7,000, respectively.

For the three months ended March 31, 2024, the Company recorded a provision for losses on unfunded commitments of $130,000, compared to a negative provision of $826,000 for the three months ended March 31, 2023.

Total unfunded commitments decreased significantly during 2023, resulting in a lower required reserve, while total unfunded commitments did not change significantly in the three months

ended March 31, 2024.

General market conditions and unique circumstances related to specific industries and individual projects contribute to the level of provisions and charge-offs.

The Bank’s allowance for credit losses as a percentage of total loans was 1.40% and 1.39% at March 31, 2024 and December 31, 2023, respectively.

Management considers the allowance for credit losses adequate to cover losses inherent in the Bank’s loan portfolio at March 31, 2024, based on recent reviews of the Bank’s loan portfolio and current economic conditions.

If challenging economic conditions were to last longer than anticipated or deteriorate further or management’s assessment of the loan portfolio were to change, additional loan loss provisions could be required, thereby adversely affecting the Company’s future results of operations and financial condition.

During the three months ended June 30, 2024 and June 30, 2023, the Company did not record a provision expense on its portfolio of outstanding loans.

During the six months ended June 30, 2024, the Company recorded provision expense of $500,000 on its portfolio of outstanding loans.

During the six months ended June 30, 2023, the Company recorded provision expense of $1.5 million on its portfolio of outstanding loans.

Total net recoveries were $168,000 for the three months ended June 30, 2024, compared to net charge-offs of $135,000 in the three months ended June 30, 2023.

Total net recoveries were $85,000 for the six months ended June 30, 2024, compared to net charge-offs of $128,000 in the six months ended June 30, 2023.

The provision for losses on unfunded commitments for the three months ended June 30, 2024 was a negative provision of $607,000, compared to a negative provision of $1.6 million for the three months ended June 30, 2023.

The provision for losses on unfunded commitments for the six months ended June 30, 2024 was a negative provision of $477,000, compared to a negative provision of $2.4 million for the six months ended June 30, 2023.

The level and mix of unfunded commitments resulted in a decrease in the required reserve for such potential losses.

General market conditions and unique circumstances related to specific industries and individual projects contribute to the determination of the level of provisions and charge-offs in each period.

The Bank’s allowance for credit losses as a percentage of total loans was 1.39% at both June 30, 2024 and December 31, 2023.

Management considers the allowance for credit losses adequate to cover losses inherent in the Bank’s loan portfolio at June 30, 2024, based on recent reviews of the Bank’s loan portfolio and current economic conditions.

If challenging economic conditions were to last longer than anticipated or deteriorate further, or if management’s assessment of the loan portfolio were to change, additional loan loss provisions could be required, thereby adversely affecting the Company’s future results of operations and financial condition.

Non-performing Assets

As a result of changes in loan portfolio composition, changes in economic and market conditions and other factors specific to a borrower’s circumstances, the level of non-performing assets will fluctuate.

At March 31, 2024, non-performing assets were $21.3 million, an increase of $9.5 million from $11.8 million at December 31, 2023.

Non-performing assets as a percentage of total assets were 0.37% at March 31, 2024, compared to 0.20% at December 31, 2023.

Compared to December 31, 2023, non-performing loans increased $9.6 million, to $21.3 million at March 31, 2024, and foreclosed and repossessed assets increased $24,000, to $47,000 at March 31, 2024.

The majority of the increase in non-performing loans was in the other residential (multi-family) loans category, which increased $9.6 million from December 31, 2023.

At June 30, 2024, non-performing assets were $20.4 million, an increase of $8.6 million from $11.8 million at December 31, 2023.

Non-performing assets as a percentage of total assets were 0.34% at June 30, 2024, compared to 0.20% at December 31, 2023.

One loan relationship, totaling $9.3 million, was transferred from non-performing loans to foreclosed assets held for sale in the three months ended June 30, 2024.

Compared to December 31, 2023, non-performing loans decreased $765,000, to $11.0 million at June 30, 2024.

The majority of this decrease was in the non-performing commercial real estate loans category, which decreased $788,000 from December 31, 2023.

Compared to December 31, 2023, foreclosed assets increased $9.4 million to $9.4 million at June 30, 2024.

Nearly all of this increase was in the other residential (multi-family) loans category, which increased $9.3 million from December 31, 2023.

Non-performing Loans .

Activity in the non-performing loans category during the three months ended March 31, 2024 was as follows:

Activity in the non-performing loans category during the six months ended June 30, 2024 was as follows:

Repossessions

5 unchanged sentences

One- to four-family residential

Other residential (multi-family)

Other residential

Commercial real estate

1 unchanged sentence

Total non-performing loans

At March 31, 2024, the non-performing commercial real estate category included five loans, two of which were added during the current period.

The largest relationship in the category, which totaled $7.9 million, or 74.7% of the total category, was added to non-performing loans in 2023 and is collateralized by an office building in Missouri.

Another loan, totaling $2.2 million, which was a purchased participation loan originally obtained through an FDIC-assisted acquisition, was added to non-performing loans in the fourth quarter of 2023.

This loan is collateralized by a low-income assisted living facility in Wisconsin.

During the three months ended March 31, 2024, material terms were changed on this loan, including the Company purchasing the lead participant’s $220,000 interest in this note.

The other residential (multi-family) category of non-performing loans included one loan, which totaled $9.6 million and was added during the current period.

The Company purchased a participation interest in this loan in 2018, and was not the lead lender for the relationship.

This loan was collateralized by a student housing project in Texas and was foreclosed upon in April 2024.

The Company does not currently expect any material charge-off on this foreclosed asset.

The non-performing one- to four-family residential category included three loans, one of which was added during the current period.

The largest relationship in the category totaled $529,000, or 84.4% of the category.

The non-performing land development category consisted of one loan added in 2021, which totaled $384,000 and is collateralized by unimproved zoned vacant ground in southern Illinois.

The non-performing consumer category included eight loans, five of which were added during the current period.

At June 30, 2024, the non-performing commercial real estate category included five loans, three of which were added during the current period.

The largest relationship in the category, which totaled $7.2 million, or 73.5% of the total category, was added to non-performing loans during the second quarter of 2023 and is collateralized by an office building in Missouri.

The balance of this relationship was reduced by payments of $883,000 during the six months ended June 30, 2024.

Another loan, totaling $2.4 million, which was a purchased participation loan originally obtained through an FDIC-assisted acquisition, is collateralized by a low-income assisted living facility in Wisconsin.

During the first quarter of 2024, the Company purchased the lead participant’s $220,000 interest in this note, resulting in a 66% ownership interest.

The other residential (multi-family) category of non-performing loans consisted of one student housing project in Texas, which was added to this category during the first quarter of 2024 and transferred to foreclosed assets during the three months ended June 30, 2024.

The non-performing one- to four-family residential category included three loans.

The largest relationship in the category totaled $593,000, or 51.7% of the category, and was added in the current period.

The non-performing consumer category included five loans, three of which were added during the current period.

Potential Problem Loans.

Potential problem loans increased $16,000 from December 31, 2023.

The increase during the period was primarily due to multiple loans, totaling $109,000, being added to potential problem loans, partially offset by $72,000 in loan payments and $21,000 in charge offs.

Potential problem loans decreased $1.8 million, to $5.6 million at June 30, 2024 from $7.4 million at December 31, 2023.

The decrease during the period was primarily due to a $7.2 million loan in the other residential (multi-family) category that paid off during the period, partially offset by the addition of one loan relationship totaling $4.9 million ($4.4 million in the commercial real estate category and $498,000 in the consumer category) during the six months ended June 30, 2024.

Potential problem loans are loans which management has identified through routine internal review procedures as having possible credit problems that may cause the borrowers difficulty in complying with the current repayment terms.

These loans are not reflected in non-performing assets.

Activity in the potential problem loans categories during the three months ended March 31, 2024, was as follows:

Activity in the potential problem loans category during the six months ended June 30, 2024 was as follows:

Repossessions

5 unchanged sentences

One- to four-family residential

Other residential (multi-family)

Other residential

Commercial real estate

1 unchanged sentence

Total potential problem loans

At March 31, 2024, the other residential (multi-family) category of potential problem loans included one loan, which totaled $7.2 million and was added to potential problem loans in 2023.

This loan is collateralized by an apartment and retail project in Oklahoma City, Oklahoma.

This loan was fully paid off in April 2024.

The one- to four-family residential category of potential problem loans included two loans, one of which was added during the current period.

At June 30, 2024, the commercial real estate category of potential problem loans included three loans, all of which are part of one relationship and were added during the current period.

This relationship is collateralized by three nursing care facilities located in southwest Missouri.

The borrower’s business cash flow was negatively impacted by a labor shortage and a decrease in Medicaid reimbursement during 2022-2023.

Monthly payments were made prior to and continued to be made after the transfer to this category.

The one- to four-family residential category of potential problem loans included five loans, four of which were added during the current period.

The largest relationship in this category totaled $98,000, or 29.9% of the total category.

The commercial business category of potential problem loans included one loan, which totaled $13,000, and was added during the current period.

The consumer category of potential problem loans included nine loans, six of which were added during the current period.

The commercial business category of potential problem loans included two loans.

The largest relationship in this category totaled $200,000, or 96.5% of the total category, and was added during the current period.

The consumer category of potential problem loans included 11 loans, nine of which were added during the current period, including one home equity loan totaling $498,000 that is related to the nursing care facility relationship noted above.

The decrease in the other residential (multi-family) category of potential problem loans included the payment in full in April 2024 of one $7.2 million loan relationship that was collateralized by an apartment and retail project in Oklahoma.

Other Real Estate Owned and Repossessions.

Of the total $1.0 million of other real estate owned and repossessions at March 31, 2024, $995,000 represents Bank-owned properties that were not acquired through foreclosure.

Activity in foreclosed assets and repossessions during the three months ended March 31, 2024, was as follows:

All of the total $9.4 million of other real estate owned and repossessions at June 30, 2024 were acquired through foreclosure.

Activity in foreclosed assets and repossessions during the six months ended June 30, 2024 was as follows:

(In thousands)

4 unchanged sentences

One- to four-family residential

Other residential (multi-family)

Other residential

Commercial real estate

1 unchanged sentence

Total foreclosed assets and repossessions

At June 30, 2024, the land development category of foreclosed assets consisted of one property in southern Illinois, which was transferred from non-performing loans during the six months ended June 30, 2024.

The other residential (multi-family) category of foreclosed assets included one property consisting of student housing in Texas, which was added during the six months ended June 30, 2024.

The additions and sales in the consumer category were due to the volume of repossessions of automobiles, which generally are subject to a shorter repossession process.

Loans Classified “Watch” and “Special Mention”

The Company reviews the credit quality of its loan portfolio using an internal grading system that classifies loans as “Satisfactory,” “Watch,” “Special Mention,” “Substandard” and “Doubtful.” Multiple loan reviews take place on a continuous basis by credit risk and

lending management.

Reviews are focused on financial performance, occupancy trends, delinquency status, covenant compliance, collateral support, economic considerations and various other factors.

Loans classified as “Watch” are being monitored due to indications of potential weaknesses or deficiencies that may require future reclassification as special mention or substandard.

Loans classified as “Watch” decreased $1.5 million, from $8.3 million at December 31, 2023 to $6.8 million at March 31, 2024, primarily due to one large commercial business loan being paid off.

While loans classified as “Special Mention” are not adversely classified, they are deserving of management’s close attention to ensure repayment prospects and that the credit position of the assets does not deteriorate and expose the institution to elevated risk to warrant adverse classification at a future date.

In the three months ended March 31, 2024, loans classified as “Special Mention” decreased $3.5 million, to $23.2 million, as one loan relationship totaling $9.6 million was downgraded to “Substandard” and added to non-performing loans.

The largest relationship consisted of four commercial business loans totaling $15.6 million at March 31, 2024 and is secured by business assets, equipment, accounts receivable and real estate.

Loans classified as “Watch” decreased $1.0 million, from $8.3 million at December 31, 2023 to $7.3 million at June 30, 2024, primarily due to the payoff of a single $1.4 million loan.

While loans classified as “Special Mention” are not adversely classified, they are deserving of management’s close attention to ensure repayment prospects and that the credit position of the assets does not deteriorate and expose the institution to elevated risk, which might warrant adverse classification at a future date.

In the six months ended June 30, 2024, loans classified as “Special Mention” decreased $7.9 million, to $18.7 million, as two loan relationships were downgraded to “Substandard” and added to non-performing loans.

The largest relationship consisted of four commercial business loans totaling $16.0 million at June 30, 2024 and is secured by business assets, equipment, accounts receivable and real estate.

The relationship was added to the “Special Mention” category during 2023 due to stressed cash flow associated with business expansion.

The borrower reduced debt significantly in 2023 by restructuring business operations, resulting in improved business cash flow and collateral margins and since December 31, 2023 has drawn $5.8 million on a working capital line of credit.

Another relationship totaling $4.8 million at March 31, 2024 was added to the “Special Mention” category in 2023.

This relationship is collateralized by three assisted care facilities located in southwest Missouri.

Business cash flow was negatively impacted by a labor shortage and a decrease in Medicaid reimbursement during 2022-2023.

Monthly payments continue to amortize the loan balance.

Since that time, the borrower has reduced debt by restructuring business operations, resulting in improved business cash flow and collateral margins.

See Note 6 “Loans and Allowance for Credit Losses” in the Notes to Consolidated Financial Statements included in this report for further discussion of the Company’s loan grading system.

Non-interest Income

For the three months ended March 31, 2024, non-interest income decreased $1.1 million to $6.8 million when compared to the three months ended March 31, 2023, primarily as a result of the following items:

For the three months ended June 30, 2024, non-interest income increased $2.1 million to $9.8 million when compared to the three months ended June 30, 2023, primarily as a result of the following items:

Other income :

Other income increased $2.6 million compared to the prior year period.

In the three months ended June 30, 2024, the Company recorded $2.7 million of other income, net of expenses and write-offs, related to the termination of the Master Agreement between the Company and a third-party software vendor for the conversion of the Company’s core banking platform.

This termination was previously disclosed in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024.

This amount represented the elimination of certain deferred credits and other liabilities, along with the write-off of certain capitalized hardware, software and other assets, that previously had been recorded as part of the preparation to convert to the new core-banking platform.

Net gains on loan sales :

Net gains on loan sales increased $418,000 compared to the prior year period.

The increase was partially due to an increase in balance of fixed-rate single-family mortgage loans sold during the 2024 period compared to the 2023 period.

Fixed rate single-family mortgage loans originated are generally subsequently sold in the secondary market.

The Company realized higher

premiums on the sales of loans in the 2024 period compared to the 2023 period, as market interest rates were more stable in the first half of 2024 compared to the first half of 2023.

Overdraft and insufficient funds fees :

Overdraft and insufficient funds fees decreased $759,000 compared to the prior year period.

This decrease was primarily due to a continuation of a multi-year trend whereby our customers are choosing to forego authorizing payments of certain items which exceed their account balances, resulting in fewer overdrafts in checking accounts and related fees.

This decrease was primarily due to the continuation of a multi-year trend whereby our customers are choosing to forego authorizing payments of certain items which exceed their account balances, resulting in fewer overdrafts in checking accounts and related fees.

We expect these fees generally to continue to decrease in the future.

For the six months ended June 30, 2024, non-interest income increased $981,000 to $16.6 million when compared to the six months ended June 30, 2023, primarily as a result of the following items:

Other income :

Other income increased $2.1 million compared to the prior year period, for the same reason noted in the quarterly comparison above.

Net gains on loan sales :

Net gains on loan sales increased $706,000 compared to the prior year period, for the same reason noted in the quarterly comparison above.

Overdraft and insufficient funds fees :

Overdraft and insufficient funds fees decreased $1.4 million compared to the prior year period, for the same reason noted in the quarterly comparison above.

Point-of-sale and ATM fees :

1 unchanged sentence

This decrease was primarily due to a portion of these transactions now being routed through channels with lower fees to us, which we expect will continue in future periods, and slightly lower usage of debit cards by our customers.

Other income :

Other income decreased $465,000 compared to the prior year period.

In the 2024 period, the Company recorded $404,000 related to activity incentives for debit card usage, compared to $799,000 in the 2023 period.

Non-interest Expense

For the three months ended March 31, 2024, non-interest expense decreased $41,000 to $34.4 million when compared to the three months ended March 31, 2023, primarily as a result of the following items:

Advertising :

Advertising expenses decreased $297,000 from the prior year period, to $350,000.

In the 2024 period, the Company received an annual marketing and card expense reimbursement for qualifying expenditures from its debit card brand provider of $423,000;

this was used to offset marketing and advertising costs that included this branding.

In the previous year period, $321,000 of this annual reimbursement was applied to marketing and advertising expenses.

Legal, Audit and Other Professional Fees :

Legal, audit and other professional fees decreased $256,000 from the prior year period, to $1.7 million.

In the 2023 period, the Company expensed a total of $1.3 million related to legal expenses and training and implementation costs for the core systems conversion and professional fees to consultants engaged to support the Company’s transition of core and ancillary software and information technology systems.

In the 2024 period, this expense was $929,000.

For the three months ended June 30, 2024, non-interest expense increased $1.7 million to $36.4 million when compared to the three months ended June 30, 2023, primarily as a result of the following items:

Other operating expenses :

Other operating expenses increased $466,000 from the prior year period, to $2.6 million.

In the 2024 period, the Company recorded expenses totaling $600,000 related to ongoing compliance matters.

The Company continually monitors its compliance programs, including matters that may arise from time to time, which could result in additional compliance expenses in future periods.

Net occupancy expenses :

Net occupancy expenses increased $432,000 from the prior year period.

Various components of computer license and support expenses collectively increased by $476,000 in the 2024 period compared to the 2023 period.

Several other non-interest expense categories increased $916,000 in total compared to the prior year period.

For the six months ended June 30, 2024, non-interest expense increased $1.7 million to $70.8 million when compared to the six months ended June 30, 2023, primarily as a result of the following items:

Salaries and employee benefits :

Salaries and employee benefits increased $453,000 from the prior year period.

A majority of this increase related to normal annual merit increases in various lending and operations areas.

Salaries and employee benefits expense increased $661,000, a 1.7% increase, from the prior year period.

Much of this increase related to normal annual merit increases in various lending and operations areas.

Net occupancy expenses :

Net occupancy expenses increased $551,000 from the prior year period, for the same reason noted in the quarterly comparison above.

Insurance expense increased $530,000 from the prior year period.

The increase was primarily due to increases in deposit insurance rates by the FDIC’s Deposit Insurance Fund, which went into effect in 2023.

The Company’s efficiency ratio for the three months ended March 31, 2024, was 66.68% compared to 56.42% for the same period in 2023.

The Company’s ratio of non-interest expense to average assets was 2.39% and 2.42% for the three months ended March 31,

2024 and 2023, respectively.

Average assets for the three months ended March 31, 2024, increased $57.8 million, or 1.0%, from the three months ended March 31, 2023, primarily due to an increase in net loans receivable and interest bearing cash equivalents, partially offset by a decrease in investment securities.

The increase was primarily due to increases in deposit insurance rates for the FDIC’s Deposit Insurance Fund, which went into effect during 2023.

The Company’s efficiency ratio for the three months ended June 30, 2024, was 64.27% compared to 62.10% for the same period in 2023.

The Company’s efficiency ratio for the six months ended June 30, 2024, was 65.42% compared to 59.13% for the same period in 2023.

The Company’s ratio of non-interest expense to average assets was 2.50% and 2.44% for the three- and six-months ended June 30, 2024, respectively, compared to 2.43% and 2.42% for the three- and six-months ended June 30, 2023, respectively.

Average assets for the three months ended June 30, 2024, increased $110.2 million, or 1.9%, from the three months ended June 30, 2023, primarily due to an increase in net loans receivable and non-interest-earning assets.

Average assets for the six months ended June 30,

2024, increased $84.0 million, or 1.5%, compared to the six months ended June 30, 2023, primarily due to increases in net loans receivable and non-interest-earning assets.

Provision for Income Taxes

For the three months ended March 31, 2024 and 2023, the Company’s effective tax rate was 19.1% and 21.2%, respectively.

For the three months ended June 30, 2024 and 2023, the Company’s effective tax rate was 18.5% and 19.7%, respectively.

For the six months ended June 30, 2024 and 2023, the Company’s effective tax rate was 18.8% and 20.5%, respectively.

These effective rates were near or below the statutory federal tax rate of 21%, due primarily to the utilization of certain investment tax credits and the Company’s tax-exempt investments and tax-exempt loans, which reduced the Company’s effective tax rate.

1 unchanged sentence

State tax expense estimates continually evolve as taxable income and apportionment between states is analyzed.

The Company’s effective income tax rate is currently generally expected to remain at or below the statutory federal tax rate due primarily to the factors noted above.

The Company currently expects its effective tax rate (combined federal and state) will be approximately 18.5% to 20.5% in future periods, primarily due to additional investment tax credits expected to be utilized beginning in 2024.

The Company currently expects its effective tax rate (combined federal and state) will be approximately 18.5% to 20.0% in future periods, primarily due to additional investment tax credits being utilized beginning in 2024.

Average Balances, Interest Rates and Yields

The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed in both dollars and rates, and the net interest margin.

The following tables present, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin.

Average balances of loans receivable include the average balances of non-accrual loans for each period.

1 unchanged sentence

Interest income on loans also includes the amortization of net loan fees which were deferred in accordance with accounting standards.

Net loan fees included in interest income were $1.2 million and $1.3 million for the three months ended March 31, 2024 and 2023, respectively.

Net loan fees included in interest income were $1.1 million and $1.5 million for the three months ended June 30, 2024 and 2023, respectively.

Net loan fees included in interest income were $2.3 million and $2.9 million for the six months ended June 30, 2024 and 2023, respectively.

Tax-exempt income was not calculated on a tax equivalent basis.

2 unchanged sentences

Three Months Ended

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

(Dollars in Thousands)

2 unchanged sentences

One- to four-family residential

Other residential (multi-family)

Other residential

Commercial real estate

3 unchanged sentences

Investment securities(1)

Other interest-earning assets

Interest-earning deposits in other banks

Total interest-earning assets

23 unchanged sentences

* Defined as the Company’s net interest income divided by total average interest-earning assets.

(1) Of the total average balances of investment securities, average tax-exempt investment securities were $57.6 million and $57.8 million for the three months ended March 31, 2024 and 2023, respectively.

In addition, average tax-exempt loans and industrial revenue bonds were $11.4 million and $10.7 million for the three months ended March 31, 2024 and 2023, respectively.

Interest income on tax-exempt assets included in this table was $568,000 and $637,000 for the three months ended March 31, 2024 and 2023, respectively.

Interest income net of disallowed interest expense related to tax-exempt assets was $460,000 and $569,000 for the three months ended March 31, 2024 and 2023, respectively.

Of the total average balances of investment securities, average tax-exempt investment securities were $56.3 million and $57.1 million for the three months ended June 30, 2024 and 2023, respectively.

In addition, average tax-exempt loans and industrial revenue bonds were $10.7 million and $14.0 million for the three months ended June 30, 2024 and 2023, respectively.

Interest income on tax-exempt assets included in this table was $589,000 and $611,000 for the three months ended June 30, 2024 and 2023, respectively.

Interest income net of disallowed interest expense related to tax-exempt assets was $481,000 and $517,000 for the three months ended June 30, 2024 and 2023, respectively.

Six Months Ended

June 30, 2024

June 30, 2023

(Dollars in Thousands)

Interest-earning assets:

Loans receivable:

One- to four-family residential

Other residential

Commercial real estate

Commercial business

Industrial revenue bonds(1)

Total loans receivable

Investment securities(1)

Interest-earning deposits in other banks

Total interest-earning assets

Non-interest-earning assets:

Cash and cash equivalents

Other non-earning assets

Interest-bearing liabilities:

Interest-bearing demand and savings

Time deposits

Brokered deposits

Total deposits

Securities sold under reverse repurchase agreements

Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities

Subordinated debentures issued to capital trusts

Subordinated notes

Total interest-bearing liabilities

Non-interest-bearing liabilities:

Demand deposits

Other liabilities

Total liabilities

Stockholders’ equity

Total liabilities and stockholders’ equity

Net interest income:

Interest rate spread

Net interest margin*

Average interest-earning assets to average interest-bearing liabilities

* Defined as the Company’s net interest income divided by total average interest-earning assets.

Of the total average balances of investment securities, average tax-exempt investment securities were $56.9 million and $57.5 million for the six months ended June 30, 2024 and 2023, respectively.

In addition, average tax-exempt loans and industrial revenue bonds were $11.1 million and $14.4 million for the six months ended June 30, 2024 and 2023, respectively.

Interest income on tax-exempt assets included in this table was $1.2 million and $1.2 million for the six months ended June 30, 2024 and 2023, respectively.

Interest income net of disallowed interest expense related to tax-exempt assets was $941,000 and $1.1 million for the six months ended June 30, 2024 and 2023, respectively.

Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the periods shown.

The following tables present the dollar amounts of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the periods shown.

For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in rate (i.e., changes in rate multiplied by old volume) and (ii) changes in volume (i.e., changes in volume multiplied by old rate).

1 unchanged sentence

Tax-exempt income was not calculated on a tax equivalent basis.

Three Months Ended March 31,

Three Months Ended June 30,

Increase (Decrease)

16 unchanged sentences

Net interest income

Six Months Ended June 30,

Increase (Decrease)

(Dollars in Thousands)

Interest-earning assets:

Loans receivable

Investment securities

Interest-earning deposits in other banks

Total interest-earning assets

Interest-bearing liabilities:

Demand deposits

Time deposits

Brokered deposits

Total deposits

Securities sold under reverse repurchase agreements

Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities

Subordinated debentures issued to capital trust

Subordinated notes

Total interest-bearing liabilities

Net interest income

Liquidity is a measure of the Company’s ability to generate sufficient cash to meet present and future financial obligations in a timely manner through either the sale or maturity of existing assets or the acquisition of additional funds through liability management.

2 unchanged sentences

As a result of the Company’s ability to generate liquidity primarily through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its borrowers’ credit needs.

At March 31, 2024, the Company had commitments of approximately $41.0 million to fund loan originations, $1.20 billion of unused lines of credit and unadvanced loans, and $15.7 million of outstanding letters of credit.

At June 30, 2024, the Company had commitments of approximately $32.6 million to fund loan originations, $1.09 billion of unused lines of credit and unadvanced loans, and $12.5 million of outstanding letters of credit.

Loan commitments and the unfunded portion of loans at the dates indicated were as follows (In Thousands):

15 unchanged sentences

The Company has also utilized both fixed-rate and floating-rate brokered deposits of varying terms, as well as overnight FHLBank borrowings and term borrowings from the FRB.

At March 31, 2024 and December 31, 2023, the Company had the following available secured lines and on-balance sheet liquidity:

March 31, 2024

At June 30, 2024 and December 31, 2023, the Company had the following available secured lines and on-balance sheet liquidity:

June 30, 2024

December 31, 2023

14 unchanged sentences

Statements of Cash Flows.

During the three months ended March 31, 2024, the Company had negative cash flows from operating activities compared to positive cash flows from operating activities for the three months ended March 31, 2023.

The Company had positive cash flows from investing activities during the three months ended March 31, 2024, compared to negative cash flows from investing activities during the three months ended March 31, 2023.

The Company had negative cash flows from financing activities during the three months ended March 31, 2024, compared to positive cash flows from financing activities during the three months ended March 31, 2023.

Cash flows from operating activities for the periods covered by the Statements of Cash Flows have been primarily related to changes in accrued and deferred assets, credits and other liabilities, the provision for credit losses, depreciation and amortization, realized gains on sales of loans and the amortization of deferred loan origination fees and discounts (premiums) on loans and investments, all of which are non-cash or non-operating adjustments to operating cash flows.

During the six months ended June 30, 2024 and 2023, the Company had positive cash flows from operating activities.

The Company had negative cash flows from investing activities during the six months ended June 30, 2024 and 2023.

The Company had positive cash flows from financing activities during the six months ended June 30, 2024 and negative cash flows from financing activities during the six months ended June 30, 2023.

which are non-cash or non-operating adjustments to operating cash flows.

Net income adjusted for non-cash and non-operating items and the origination and sale of loans held for sale were the primary source of cash flows from operating activities.

Operating activities used cash of $26.9 million and provided cash of $15.2 million during the three months ended March 31, 2024 and 2023, respectively.

During the three months ended March 31, 2024 and 2023, investing activities provided cash of $13.5 million and used cash of $63.1 million, respectively.

Investing activities in the three months ended March 31, 2024 provided cash primarily due to the net repayment of loans and investment securities and net redemption of FHLBank stock.

Investing activities in the three months ended March 31, 2023 used cash primarily due to the net origination of loans.

Changes in cash flows from financing activities during the periods covered by the Statements of Cash Flows were due to changes in deposits after interest credited and changes in short-term borrowings, as well as advances from borrowers for taxes and insurance, dividend payments to stockholders, repurchases of the Company’s common stock and the exercise of common stock options.

During the three months ended March 31, 2024 and 2023, financing activities used cash of $26.5 million and provided cash of $64.1 million, respectively.

In the three months ended March 31, 2024, financing activities used cash primarily as a result of net decreases in time deposits and short-term borrowings, purchases of the Company’s common stock and dividends paid to stockholders.

partialy offset by net increases in checking and savings deposits.

In the three months ended March 31, 2023, financing activities provided cash primarily as a result of net increases in time deposits and checking and savings deposits, partially offset by a decrease in short-term borrowings, purchases of the Company’s common stock and dividends paid to stockholders.

Operating activities provided cash of $16.6 million and $59.0 million during the six months ended June 30, 2024 and 2023, respectively.

During the six months ended June 30, 2024 and 2023, investing activities used cash of $144.2 million and $7.5 million, respectively.

Investing activities in the 2024 period used cash primarily due to net originations of loans, purchases of available-for-sale securities and investments in tax credit partnerships, partially offset by the payments received on investment securities.

Investing activities in the 2023 period used cash primarily due to net originations of loans, purchases of premises and equipment and investments in tax credit partnerships, partially offset by the payments received on investment securities.

Changes in cash flows from financing activities during the periods covered by the Statements of Cash Flows were due primarily to changes in deposits after interest credited and changes in short-term borrowings, as well as advances from borrowers for taxes and insurance, dividend payments to stockholders and repurchases of the Company’s common stock.

During the six months ended June 30, 2024 and 2023, financing activities provided cash of $102.8 million and used cash of $16.1 million, respectively.

In the 2024 period, financing activities provided cash primarily as a result of increases in FRB borrowings and short-term borrowings, partially offset by repurchases of the Company’s common stock, dividends paid to stockholders, and net decreases in time deposits and checking and savings deposits.

In the 2023 period, financing activities used cash primarily as a result of decreases in short-term borrowings, repurchases of the Company’s common stock and dividends paid to stockholders, partially offset by net increases in time deposits and checking and savings deposits.

Capital Resources

Management continuously reviews the capital position of the Company and the Bank to ensure compliance with minimum regulatory requirements, as well as to explore ways to increase capital either by retained earnings or other means.

At March 31, 2024, the Company’s total stockholders’ equity and common stockholders’ equity were each $565.2 million, or 9.8% of total assets, equivalent to a book value of $48.31 per common share.

At June 30, 2024, the Company’s total stockholders’ equity and common stockholders’ equity were each $568.8 million, or 9.6% of total assets, equivalent to a book value of $49.11 per common share.

As of December 31, 2023, total stockholders’ equity and common stockholders’ equity were each $571.8 million, or 9.8% of total assets, equivalent to a book value of $48.44 per common share.

At March 31, 2024, the Company’s tangible common equity to tangible assets ratio was 9.6%, compared to 9.7% at December 31, 2023 (See Non-GAAP Financial Measures below).

Included in stockholders’ equity at March 31, 2024 and December 31, 2023, were unrealized losses (net of taxes) on the Company’s available-for-sale investment securities totaling $45.9 million and $40.5 million, respectively.

This change in net unrealized loss during the three months ended March 31, 2024, primarily resulted from increasing intermediate-term market interest rates, which generally decreased the fair value of investment securities.

In addition, included in stockholders’ equity at March 31, 2024, were realized gains (net of taxes) on the Company’s terminated cash flow hedge (interest rate swap), totaling $9.5 million.

At June 30, 2024, the Company’s tangible common equity to tangible assets ratio was 9.4%, compared to 9.7% at December 31, 2023 (See Non-GAAP Financial Measures below).

Included in stockholders’ equity at June 30, 2024 and December 31, 2023, were unrealized losses (net of taxes) on the Company’s available-for-sale investment securities totaling $47.3 million and $40.5 million, respectively.

This change in net unrealized losses during the six months ended June 30, 2024, primarily resulted from increasing intermediate-term market interest rates (which generally decreased the fair value of investment securities) during the period.

In addition, included in stockholders’ equity at June 30, 2024, were realized gains (net of taxes) on the Company’s terminated cash flow hedge (interest rate swap), totaling $8.0 million.

This amount, plus associated deferred taxes, is expected to be accreted to interest income over the remaining term of the original interest rate swap contract, which was to end in October 2025.

At March 31, 2024, the remaining pre-tax amount to be recorded in interest income was $12.3 million.

At June 30, 2024, the remaining pre-tax amount to be recorded in interest income was $10.3 million.

The net effect on total stockholders’ equity over time will be no impact, as the reduction of this realized gain will be offset by an increase in retained earnings (as the interest income flows through pre-tax income).

Also included in stockholders’ equity at March 31, 2024, was an unrealized loss (net of taxes) on the Company’s two outstanding cash flow hedges (interest rate swaps) totaling $16.0 million.

Also included in stockholders’ equity at June 30, 2024, was an unrealized loss (net of taxes) on the Company’s two outstanding cash flow hedges (interest rate swaps) totaling $16.0 million.

Increases in market interest rates since the inception of these hedges have caused their fair values to decrease.

During the three months ended March 31, 2024, increasing forward swap rates resulted in decreasing fair values of these hedges.

As noted above, total stockholders’ equity decreased $6.7 million, from $571.8 million at December 31, 2023 to $565.2 million at March 31, 2024.

As noted above, total stockholders’ equity decreased $3.0 million, from $571.8 million at December 31, 2023 to $568.8 million at June 30, 2024.

Stockholders’ equity decreased due to repurchases of the Company’s common stock totaling $12.4 million and dividends declared on common stock of $9.3 million.

Accumulated Other Comprehensive Loss increased $10.0 million (decrease to stockholders’ equity) during the three months ended March 31, 2024, primarily due to changes (decreases) in the market value of available-for-sale securities and in the fair value of cash flow hedges.

Partially offsetting these decreases were net income of $13.4 million for the three months ended March 31, 2024 and an increase of $692,000 due to stock option exercises.

The adoption of a new accounting standard (ASU 2023-02) in the first quarter of 2024 also decreased stockholders’ equity by $223,000.

The Company had unrealized losses on its portfolio of held-to-maturity investment securities, which totaled $25.6 million at March 31, 2024, that were not included in its total capital balance.

If these held-to-maturity unrealized losses were included in capital (net of taxes), they would have decreased total stockholder’s equity by $19.3 million at March 31, 2024.

Accumulated other comprehensive loss increased $13.0 million during the six months ended June 30, 2024, primarily due to reductions in the fair value of cash flow hedges and available-for-sale investment securities resulting from increases in market interest rates.

Partially offsetting these decreases were net income of $30.4 million in the six-month period and a $1.4 million increase in stockholders’ equity due to stock option exercises.

The Company also had unrealized losses on its portfolio of held-to-maturity investment securities, which totaled $26.1 million at June 30, 2024, that were not included in its total capital balance.

If these held-to-maturity unrealized losses were included in capital (net of taxes) they would have decreased total stockholder’s equity by $19.6 million at June 30, 2024.

This amount was equal to 3.5% of total stockholders’ equity of $568.8 million.

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To be considered “well capitalized,” banks must have a minimum common equity Tier 1 capital ratio of 6.50%, a minimum Tier 1 risk-based capital ratio of 8.00%, a minimum total risk-based capital ratio of 10.00%, and a minimum Tier 1 leverage ratio of 5.00%.

On March 31, 2024, the Bank’s common equity Tier 1 capital ratio was 13.0%, its Tier 1 risk-based capital ratio was 13.0%, its total risk-based capital ratio was 14.3% and its Tier 1 leverage ratio was 11.5%.

As a result, as of March 31, 2024, the Bank was well capitalized, with capital ratios in excess of those required to qualify as such.

On December 31, 2023, the Bank’s common equity Tier 1 capital ratio was 13.1%, its Tier 1 capital ratio was 13.1%, its total capital ratio was 14.3% and its Tier 1 leverage ratio was 11.6%.

On June 30, 2024, the Bank’s common equity Tier 1 capital ratio was 13.0%, its Tier 1 risk-based capital ratio was 13.0%, its total risk-based capital ratio was 14.2% and its Tier 1 leverage ratio was 11.4%.

As a result, as of June 30, 2024, the Bank was well capitalized, with capital ratios in excess of those required to qualify as such.

On December 31, 2023, the Bank’s common equity Tier 1 capital ratio was 13.1%, its Tier 1 risk-based capital ratio was 13.1%, its total risk-based capital ratio was 14.3% and its Tier 1 leverage ratio was 11.6%.

As a result, as of December 31, 2023, the Bank was well capitalized, with capital ratios in excess of those required to qualify as such.

The FRB has established capital regulations for bank holding companies that generally parallel the capital regulations for banks.

On March 31, 2024, the Company’s common equity Tier 1 capital ratio was 11.9%, its Tier 1 risk-based capital ratio was 12.4%, its total risk-based capital ratio was 15.2% and its Tier 1 leverage ratio was 11.0%.

On December 31, 2023, the Company’s common equity Tier 1 capital ratio was 11.9%, its Tier 1 capital ratio was 12.4%, its total capital ratio was 15.2% and its Tier 1 leverage ratio was 11.0%.

On June 30, 2024, the Company’s common equity Tier 1 capital ratio was 12.0%, its Tier 1 risk-based capital ratio was 12.5%, its total risk-based capital ratio was 15.2% and its Tier 1 leverage ratio was 11.0%.

On December 31, 2023, the Company’s common equity Tier 1 capital ratio was 11.9%, its Tier 1 risk-based capital ratio was 12.4%, its total risk-based capital ratio was 15.2% and its Tier 1 leverage ratio was 11.0%.

In addition to the minimum common equity Tier 1 capital ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio, the Company and the Bank have to maintain a capital conservation buffer consisting of additional common equity Tier 1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses.

At March 31, 2024 and December 31, 2023, both the Company and the Bank had a capital conservation buffer that exceeded the required minimum levels.

During the three months ended March 31, 2024, the Company declared a common stock cash dividend of $0.40 per share, or 35% of net income per diluted common share for that three-month period, and paid a common stock cash dividend of $0.40 per share (which was declared in December 2023).

During the three months ended March 31, 2023, the Company declared a common stock cash dividend of $0.40 per share, or 24% of net income per diluted common share for that three-month period, and paid a common stock cash dividend of $0.40 per share (which was declared in December 2022).

At June 30, 2024 and December 31, 2023, both the Company and the Bank had a capital conservation buffer that exceeded the required minimum levels.

During the three months ended June 30, 2024, the Company declared a common stock cash dividend of $0.40 per share, or 28% of net income per diluted common share for that three month period, and paid a common stock cash dividend of $0.40 per share (which was declared in March 2024).

During the three months ended June 30, 2023, the Company declared a common stock cash dividend of $0.40 per share, or 26% of net income per diluted common share for that three month period, and paid a common stock cash dividend of $0.40 per share (which was declared in March 2023).

During the six months ended June 30, 2024, the Company declared common stock cash dividends totaling $0.80 per share, or 31% of net income per diluted common share for that six month period, and paid common stock cash dividends of $0.80 per share.

During the six months ended June 30, 2023, the Company declared common stock cash dividends totaling $0.80 per share, or 25% of net income per diluted common share for that six month period, and paid common stock cash dividends of $0.80 per share.

The Board of Directors meets regularly to consider the level and the timing of dividend payments.

The $0.40 per share dividend declared but unpaid as of March 31, 2024, was paid to stockholders in April 2024.

The $0.40 per share dividend declared but unpaid as of June 30, 2024, was paid to stockholders in July 2024.

Common Stock Repurchases and Issuances .

The Company has been in various buy-back programs since May 1990.

During the three months ended March 31, 2024, the Company repurchased 112,362 shares of its common stock at an average price of $51.44 per share and issued 7,288 shares of common stock at an average price of $35.41 per share to cover stock option exercises.

During the three months ended March 31, 2023, the Company repurchased 99,121 shares of its common stock at an average price of $55.70 per share and issued 1,717 shares of common stock at an average price of $43.05 per share to cover stock option exercises.

During the three months ended June 30, 2024, the Company repurchased 124,600 shares of its common stock at an average price of $51.88 per share and issued 7,850 shares of common stock at an average price of $38.77 per share to cover stock option exercises.

During the three months ended June 30, 2023, the Company repurchased 170,200 shares of its common stock at an average price of $50.70 per share and issued 5,838 shares of common stock at an average price of $31.07 per share to cover stock option exercises.

During the six months ended June 30, 2024, the Company repurchased 236,962 shares of its common stock at an average price of $51.67 per share and issued 15,138 shares of common stock at an average price of $37.15 per share to cover stock option exercises.

During the six months ended June 30, 2023, the Company repurchased 269,321 shares of its common stock at an average price of $52.54 per share and issued 7,555 shares of common stock at an average price of $33.79 per share to cover stock option exercises.

In December 2022, the Company’s Board of Directors authorized the purchase of up to one million shares of the Company’s outstanding common stock, under a program of open market purchases or privately negotiated transactions.

At March 31, 2024, approximately 615,000 shares remained available in our stock repurchase authorization.

Management has historically utilized stock buy-back programs from time to time, as long as management believed that repurchasing the Company’s common stock would contribute to the overall growth of shareholder value.

The number of shares that will be repurchased at any particular time and the prices that will be paid are subject to many factors, several of which are outside of the control of the Company.

At June 30, 2024, approximately 490,000 shares remained available in our stock repurchase authorization.

Management has historically utilized stock buy-back programs from time to time as long as management believed that repurchasing the Company’s common stock would contribute to the overall growth of stockholder value.

The number of shares that will be repurchased at any particular time and the prices that will be paid are subject to many factors, several of which are outside of the

control of the Company.

The primary factors typically include the number of shares available in the market from sellers at any given time, the market price of the stock and the projected impact on the Company’s earnings per share and capital.

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Ratio of Tangible Common Equity to Tangible Assets

March 31, 2024

June 30, 2024

December 31, 2023

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis